Your Personal Liability for Discrimination Claims Against Your Employer: understand the risks
Management level employees at New York companies need to be aware of their potential personal liability for claims of harassment or discrimination, even when those claims are primarily directed at others.
Understand the Exposure
Management employees often assume that their employer’s formation as a corporation or other limited liability entity protects them from personal liability for employment claims, but that is not the case in New York. Personal liability for a judgment in a discrimination case can have devastating financial consequences for individual employees. Managers working in toxic work environments, therefore, must act proactively to limit their exposure.
New York vs. Federal Law
Federal discrimination law generally does not impose personal liability on employees; only the employer entity is responsible for discrimination claims. New York City and State law, however, impose personal liability on employees in three scenarios. The following is a quick primer on this critical area of employment law.
Personal Liability for Directly Participating in Discriminatory Conduct
First and most obvious, individual employees may be held personally liable under City and State law if they are the primary perpetrators of discrimination or harassment in the workplace. Often this risk may be mitigated merely by acting professionally in the workplace. However, mangers directly responsible for supervising or disciplining problematic employees may be sued in their individual capacities if their conduct is deemed harassing or discriminatory.
Consequently, managers supervising junior reports who are members of a protected class should take extra care to memorialize the basis for adverse employment decisions and involve other members of management in the disciplinary process if the relationship with the employee starts to sour. In a combustible situation, managers can minimize their personal exposure by minimizing the role they play in an adverse employment action.
Personal Liability of Employees Deemed to be “Employers”
Second, New York State law imposes personal liability upon employees having sufficient ownership or control over an entity to be considered to be the “employer” of the plaintiff employee. Courts employ an “economic realities” test to determine if an individual employee has sufficient control to be deemed the employer. See Scalara v Electrograph Systems Inc.
Liability is usually found where dominant employees own or control smaller companies. While an ownership interest is often present, it is not required, and all senior persons playing outsize roles in personnel matters should be aware of their potential personal liability based on this theory. Such senior employees should insist that their employment agreements contain indemnification provisions covering legal fees and other liabilities associated with employee claims against them.
Personal Liability for “Aiding and Abetting” Primary Wrongdoers
Finally, New York City and State law may impose personal liability upon employees for “aiding and abetting” primary wrongdoers. This type of claim is most likely to impose liability upon unsuspecting managers who do not realize they have personal exposure to a dispute that they view as primarily between the employee and employer.
New York caselaw is inconsistent regarding the type of conduct required to establish aiding and abetting liability. But several prominent courts have held that mere inaction, rather than actual participation, is sufficient to establish personal liability for discriminatory conduct. Failing properly to investigate claims or failing to discipline perpetrators have been enough to expose supervisors to personal liability for discrimination claims. See Ananiadis v. Mediterranean Gyros. Supervisors handling employment claims, therefore, must act decisively and immediately escalate complaints up the corporate ladder to minimize the potential for personal exposure. That does not mean that supervisors should credit complaints deemed to be meritless, but rather they must timely and diligently process complaints through established channels.
Supervisors must take very seriously their exposure to personal liability for employment discrimination claims under New York law. At a minimum, supervisors must carefully document all complaints and process them through established channels. If able, supervisors should also ask employers to indemnify them for all attorneys’ fees and other liabilities resulting from any employee claims, particularly if supervisors work in HR and regularly make difficult decisions relating to discipline, assignments, supervision, or termination. Personal liability for an adverse judgement on a claim for employment discrimination can cause extreme financial hardship and this risk should not be ignored.