Employment Matters
When the Empire Strikes Back

By Judith A. Moldover

GC New York
April 19, 2007

Anyone who has had the task of informing an executive that he or she must defend a discrimination charge understands why almost all protective employment laws contain an anti-retaliation provision. Counsel must ensure that the executive does not indulge even a subconscious urge to get even. While demotions, failure to promote, and outright firings have always been held to be "adverse employment actions," the U.S. Supreme Court recently clarified that any employer act, even an act outside of the workplace, that is "materially adverse," i.e., would deter an objectively reasonable person from pursuing statutory rights, is unlawful retaliation, provided that there is a nexus with the employee's known statutorily protected activity, Burlington Northern & Santa Fe Railway Co. v. White, 126 S.Ct. 2405 (2006).

The Court cited the filing of unfounded criminal charges as an example of retaliatory employer conduct which could occur outside the workplace. One previously unsettled issue that Burlington Northern has done little to clarify is whether an employer's civil lawsuits or counterclaims might constitute retaliation.

Proceed With Caution

Although Burlington Northern was brought under Title VII of the Civil Rights Act of 1964,¹ the Court quoted an earlier decision, enjoining a lawsuit brought in retaliation for filing an unfair labor practice charge, for the proposition that employer lawsuits have a "chilling effect" on the pursuit of employee rights. That case actually held, however, that given an employer's First Amendment right to access the courts, only unfounded litigation filed with retaliatory intent is prohibited, and specifically held that a well-founded lawsuit, even one filed with retaliatory motive, is not an unfair labor practice, Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731, 747 (1983).

The Court in BE&K Construction Co. v. NLRB, 536 U.S. 516 (2002), subsequently established a test for unfounded litigation: first, inquire whether there is any "objective basis" for filing the lawsuit, i.e., a reasonable belief that there is a chance that the claim will be upheld. If, and only if, there is no objective basis may a court then inquire into the employer's subjective motivation.

Nevertheless, the lower courts have often failed to balance the right of employees to be free from retaliation with the employer's right to petition the courts. As a result, courts have differed as to how the retaliation provisions of the various protective employment statutes should be applied to employer claims.

Given that Burlington Northern did not rule specifically on whether civil claims brought by employers constitute retaliation, it is safe to assume that many of the older decisions are still good law. Indeed, the rationale for some of these decisions anticipated Burlington Northern (e.g., EEOC v. Outback Steakhouse of Florida, 75 F.Supp.2d 756 (N.D. Ohio 1999)), and the lower courts may well emphasize the chilling effect on employees over the employers' First Amendment rights. As a result, employers who insist on pursuing claims against employees who have exercised statutory rights must proceed with extreme caution.

Employer Lawsuits

It has long been recognized that an employer may not lawfully terminate an employee who files a maliciously false Equal Employment Opportunity Commission charge. Proulx v. Citibank, 659 F.Supp. 972 (S.D.N.Y. 1987). In Proulx, the Southern District of New York stated in dicta that an employer's recourse, in addition to defending the charge on the merits, is to sue the employee for defamation. Shortly after Burlington Northern was decided, the U.S. District Court for the Eastern District of New York noted that few employers have accepted this invitation and mused that frivolous employer lawsuits might now be retaliatory, Spiegel v. Schulmann, 03-CV-5088, 2006 U.S. Dist. LEXIS 86531 (Nov. 30, 2006 E.D.N.Y.).

In light of this development, is it advisable for an employer who has received an apparently baseless charge to fight back with a defamation lawsuit against the charging party while the charge is still pending? Even before Burlington Northern, many courts had determined that EEOC charges, "the life blood of Title VII," are "absolutely" privileged, rendering employer lawsuits filed while the charge is still pending retaliatory, EEOC v. Virginia Carolina Veneer, 495 F.Supp. 775, 777 (W.D. Va. 1980).² Waiting until shortly after the terminated employee files a charge, especially if the termination has occurred months before, can provide the causal link needed for the former employee to establish a prima facie case of retaliation, Cozzi v. Pepsi-Cola Gen. Bottlers, No.96 C 7228, 1997 U.S. Dist. LEXIS 7979 (May 30, 1997 N.D. Ill.). After Burlington Northern, courts will surely view the prospect of defending an employer's lawsuit as deterring an objectively reasonable employee from pursuing legal action.

Some courts have continued to cite EEOC v. Levi Strauss, 515 F.Supp. 640, 644 (N.D. Ill. 1981), acknowledging that "there is no authority for the proposition that Title VII, sub silentio, preempts all state defamation proceedings" and recognizing that defendants may have legitimate claims against plaintiffs. After Burlington Northern, such courts could continue to rule the same way. But even these courts may refuse to dismiss an EEOC petition to enjoin a state defamation suit while a charge is pending.

The court in Levi Strauss recognized that a supervisor accused of sexual harassment has the right to file a state court defamation lawsuit in good faith to rehabilitate himself. However, for purposes of the motion, the court, when forced to accept as true the EEOC's allegation that the state lawsuit had been filed for a retaliatory purpose, denied the supervisor's motion to dismiss, EEOC v. Levi Strauss, 515 F.Supp. at 644. Prudent employers should take note that the employer's motion to dismiss was granted, as there was no evidence that it had induced the supervisor to file the lawsuit.

While filing a lawsuit against an employee or former employee while a charge is pending will continue to be a non-starter, waiting for the conclusion of the charge process or the subsequent lawsuit does not spell success in defending retaliation claims. A district court last year held that state law claims, including malicious prosecution, brought against a former employee after she lost her sexual harassment jury trial, presented a prima facie case of retaliation, citing both Burlington Northern and that state's statutory language prohibiting discrimination "in any manner," Greer-Burger v. Tamesi, No. 87104, 2006 Ohio App. LEXIS 3646 (July 20, 2006 Ct. App. Ohio), acc. for rev. 2006 Ohio App. LEXIS 3434. The court found that the employer's demand for punitive damages rendered its stated reason for filing the lawsuit, to recoup its attorney's fees, pretextual. Query whether the employer might have prevailed, had it not demanded punitive damages.

Employer Counterclaims

While employer actions against a litigant may be suspect, employer reaction, in the form of a counterclaim, has been viewed more tolerantly by some courts.³ Opining that a counterclaim can rarely be retaliatory, a district court, contrary to Yankelevitz v. Cornell University Medical College, 95 Civ. 4593, 1996 U.S. Dist. LEXIS 11298 (Aug. 7, 1996 S.D.N.Y.), stated that "counterclaims are supposed to be brought in response to a complaint." The court dismissed plaintiff's amended complaint for retaliation based on defendant's somewhat creative counterclaim, which it also dismissed, Beltran v. Brentwood N. Healthcare Ctr., 426 F.Supp.2d 827, 833 (N.D. Ill. 2006). The employer had counterclaimed for breach of fiduciary duty, alleging that the employees, who were suing for unpaid overtime, had actually been sleeping on the job. The court found that there was no precedent for the proposition that breach of the duty of loyalty included improper job performance, as opposed to more serious conduct like theft.

Another court recognized that counterclaims raise different policy considerations from lawsuits because the plaintiff usually has an attorney, and there is no chilling effect, especially if no monetary damages are claimed, because the employee has already engaged in protected activity. Furthermore, that court reasoned, Bill Johnson's permits even a retaliatory lawsuit if there is a substantial basis to bring it, Harmar v. United Airlines, No. 95 C 7665, 1996 U.S. Dist. LEXIS 5346 (April 23, 1996 N.D. Ill.). These policy considerations remain even after Burlington Northern.

Still, even before Burlington Northern, several courts had reasoned that a counterclaim may be retaliatory. In the lead case, EEOC v. Outback Steakhouse of Florida, 75 F.Supp.2d 756 (N.D. Ohio 1999), a district court denied the employer's motion to dismiss the EEOC's retaliation lawsuit, brought because the employer had filed a non-employment related counterclaim against a plaintiff in a prior sexual harassment lawsuit.

The court decided that Title VII prohibits retaliatory acts outside of employment based on an analysis of statutory language; Bill Johnson's concern with the chilling effect of lawsuits; and precedents holding that bad faith lawsuits are retaliation. The court's failure to even mention the nature or merits of the counterclaim suggests a strong bias against any employer counterclaims. Another district court in Ohio, observing that "the essential framework of statutory retaliation provisions are [sic] the same," realized that the analysis in BE&K Construction Co., supra, was appropriate to a retaliation claim based on an employer's counterclaim, but refused to weigh the substantiality of the employer's counterclaim until after the record was developed, Rosania v. Taco Bell, 303 F.Supp.2d 878, 888 (N.D. Ohio 2004).

Likewise, plaintiffs have been permitted to amend their complaints to add a count of retaliation in response to counterclaims that might damage their business reputation, such as counterclaims for unfair competition filed against a former employee who started a new business, Kreinik v. Showbran Photo, 02 Civ. 1172, 2003 U.S. Dist. LEXIS 18276 (Oct. 14, 2003 S.D.N.Y.),⁴ or a counterclaim alleging financial impropriety in a plaintiff-doctor's faculty practice, Yankelevitz, supra. Conversely, a counterclaim for repayment of benefits paid while plaintiff was on maternity leave was ruled not retaliatory, because it did not impugn plaintiff's ethical or professional reputation, Ginsberg v. Valhalla Anesthesia Assoc., 971 F.Supp. 144 (S.D.N.Y. 1997). All three decisions evaluated the effect of the counterclaim on plaintiff's employment or professional opportunities. After Burlington Northern, would courts look directly at the deterrent factor and decide a contract case like Ginsberg differently?

Other courts have distinguished invalid tort counterclaims from valid contract counterclaims, finding that the latter are not retaliatory, Blistein v. St. John's College, 860 F.Supp. 256 (D. Md. 1994). Is this distinction meaningful after Burlington Northern? While these cases suggest that counterclaims for loan repayments, expense account abuse and the like might not be retaliation, plaintiffs might successfully argue that contract counterclaims are unlawful if the employer pursues such claims only against employees who have exercised their rights: An employee would be deterred from pursuing legal action, knowing that she might be held accountable for payments that the employer ordinarily overlooks. The courts in both Yankelevitz and Kreinik, supra, found retaliatory motive in part because the defendant waited until after plaintiff had filed a lawsuit to pursue its claim. Such decisions ignore the reality that employers frequently do not learn about the full extent of employee misconduct until records are scrutinized carefully in the course of defending that employee's legal claim.

Conclusion

In an ideal world, omniscient employers would consistently take immediate legal and disciplinary action in response to employee misconduct. In the real world, employers must now make an individualized assessment of whether any legal claim they may have against an employee who has exercised statutory rights justifies the risk of provoking a retaliation claim. They must carefully assess the law in the relevant jurisdiction before becoming plaintiffs themselves. Then, and only then, should they proceed with narrowly tailored claims which vindicate significant legitimate interests. While Burlington Northern cited Bill Johnson's discussion of the chilling effect of lawsuits, the Court did not announce that employers no longer have First Amendment rights to access the courts.

Judith A. Moldover is of counsel to Ford & Harrison, in the New York office, and previously practiced as in-house counsel.

Endnotes:

1. 42 U.S.C. 2000e-3(a).

2. Citing Moran v. Simpson, 362 N.Y.S.2d 666 (Sup. Ct., Livingston Co. 1974) (public accommodation).

3. However, the only court of appeals decision to hold that a counterclaim cannot be retaliation is no longer good law, as its "ultimate employment action" rationale has been overruled, Hernandez v. Crawford Bldg. Material Co., 321 F.3d 528 (5th Cir. 2003).

4. Judgment was ultimately entered for defendant, based on the jury's finding that plaintiff was an independent contractor, 400 F.Supp.2d 554 (S.D.N.Y. 2005).