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Open for Business

By David Savage

May 8, 2006, 11:40 pm CDT

Anyone reading the front page or watching TV news might think the U.S. Supreme Court decides only matters such as abortion, the Ten Command­ments and the death penalty. But in this term alone, the justices will decide at least a dozen business cases that could yield significant decisions.

“This is an extremely important term for business, not because of one or two blockbuster cases but because there is a rich array of important issues,” says Washington, D.C., attorney Mark I. Levy.

In the past decade, for example, there has been a doubling in the number of job-discrimination claims in which the employee alleges retaliation after complaining of discrimination, according to the U.S. Equal Employment Oppor­tunity Commission. The court has said that retaliation itself is a separate act of discrimination prohibited by federal law, but it has yet to rule on the question of what constitutes retaliation.

It will likely do so this term in Burlington Northern & Santa Fe Railway Co. v. White, No. 05-0259. The case began in June 1997 when Sheila White was hired to oper­ate a forklift on a track maintenance crew at Burlington’s Tennessee Yard in Memphis. The only woman on the crew, she claims her foreman uttered sexist comments in­volving bathroom breaks and monthly periods. He al­so allegedly repeated his view that women should not be working on the track crews.

Three months later White filed an internal complaint of sexual harassment. The next day the yard supervisor took her off the forklift and said she would work as a track laborer. In December, a week after she filed a formal com­­plaint with the EEOC alleging sex discrimination, her supervisor dismissed her, claiming that she had been insubordinate.

White brought a grievance through her union, and 37 days after her suspension—a period extending through the Christmas holidays—Burlington Northern reinstated her with full back pay.

The question for the court: Does a temporary suspension and a transfer to a somewhat different job amount to illegal retaliation? The jury that heard White’s lawsuit said it did because her supervisor intended to punish her for having filed a discrimination complaint. The jurors awarded her $43,000 in damages, mostly for emotional distress and medical expenses.

A panel of the 6th U.S. Circuit Court of Appeals at Cin­cinnati reversed and held that White had not suffered an adverse employment action because she kept her job title and did not lose any pay or benefits. The full 6th Circuit in turn reversed that decision and held that White suffered what amounted to a demotion and then a dismissal—albeit temporary—for having filed her discrimination complaint.

Employers Concerned

At the urging of several business groups, the Supreme Court agreed to hear the railroad’s appeal. Stephen Bokat, counsel for the U.S. Cham­ber of Commerce, says employers worry they could be subject to a lawsuit, a jury trial and a damages verdict for making a minor shift in a worker’s duties. “If this case stands,” Bokat says, “it means virtually every employer action and reaction following a complaint alleging discrimination could require litigation.”

The EEOC, which enforces workplace anti-bias laws, says any retaliation is illegal if it would dissuade employees from complaining of job discrimination. University of Washington law professor Eric Schnapper, who worked on White’s case, says he hopes the high court will adopt that standard.

“Our position is that all retaliation is illegal, period,” Schnapper says. He notes that when the Supreme Court spelled out standards for sexual harassment suits in 1998, it said that before suing, employees should bring their complaints to their top supervisors. Faragher v. City of Boca Raton, 524 U.S. 775. “If retaliation is possible, it wrecks the whole scheme. People will be afraid to make complaints,” Schnapper says.

Third-Party Payments

Another recurring question concerns when health care plans can recover money that was paid out to cover an injured employee’s medical costs. Most plans require their participants to agree to reimburse them for the benefits they have paid if the participants recover money from a third party in the form of a tort suit or a settlement. How­ever, it is unclear whether these reimbursement rules can be enforced.

The 1974 Employee Retirement Income Security Act, which regulates benefits, says that benefit plans may go to court to obtain “appropriate equitable relief.”

But in 2002, the Supreme Court gave a narrow reading to the term equitable. In a 5-4 decision written by Jus­tice Antonin Scalia, the court rejected a recovery claim brought by an insurance company that had paid more than $400,000 for the treatment and care of a California woman who had been rendered a paraplegic in an auto accident. Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204. The suit was brought against the woman rather than the trustee who held the funds for her care. The court said the insurer’s suit was a legal claim for a breach of contract, not an action seeking equitable relief.

Since then, lower courts have split on when or whether the right to recover can be enforced in federal court. With Sereboff v. Mid-Atlantic Medical Services, No. 05-0260, the justices will attempt to clarify the law in cases against defendants who actually possess money from a judgment.

The case began when Dr. Joel Sereboff, a psychologist, and his wife, Marlene, a nurse, were injured by a van that struck their rental car as they were returning to the airport in San Jose, Calif. The two were insured by a self-funded plan for medical professionals in Maryland, which paid nearly $75,000 for their injuries. The couple sued and received a settlement of $750,000. They refused, however, to reimburse their medical plan, which in turn sued them to recover the money.

A coalition of health insurers and business groups urged the court to switch course and uphold the right to recover the cost of benefits paid. Otherwise, they say, insurance rates will have to rise to make up the difference.

Congress might also resolve the matter. The House of Representatives has included an amendment in a pending pension-reform bill that would clearly authorize such legally enforced recoveries.

Congress also played a key role in a pending racketeer­ing case that has manufacturers worried. In 1996, lawmakers made it a federal crime to “knowingly hire” at least 10 illegal immigrants during a year. Smuggling illegal immigrants to the United States and harboring them was also made a crime.

Chicago lawyer Howard W. Foster seized on those provisions and sent a scare through corporate America. He filed several racketeering lawsuits against employers who had recruited and hired illegal workers.

“I have received dozens of calls from people around the country, including the people at Mohawk,” he says, referring to Mohawk Industries Inc., based in Calhoun, Ga.—the nation’s second largest carpet and rug manufacturer. Current and former Mohawk workers joined the suit as plaintiffs and alleged their wages were depressed because the company conspired with recruiters in a racketeering enterprise to smuggle, harbor and hire immigrants who would work for very little money.

Business lawyers were alarmed when the Atlanta-based 11th U.S. Circuit Court of Appeals ruled the workers’ suit against Mohawk stated a claim under the Racketeer Influenced and Corrupt Organizations Act.

“RICO is the litigation equivalent of a thermonuclear device,” says Robin Conrad, a lawyer for the U.S. Cham­ber of Commerce, because companies can be branded as racketeers and forced to pay triple damages. Unless reversed, “this case threatens to expand dramatically RICO liability for corporations that, to remain competitive, must rely more than ever on nonemployees to provide goods and services,” she says. Much of the business sector, including the Na­tional As­sociation of Manufacturers and the National Federation of Inde­pendent Business, urged the court to rein in RICO.

A ruling in the case of Mohawk Industries Inc. v. Williams, No. 05-0465, could affect many businesses, even law firms, if the court were to uphold the racketeering claim, says Levy. The suit is based on the theory that outside contractors or recruiters are a separate enterprise that is associated with the manufacturer. “As more companies outsource part of their work, this issue becomes more important,” Levy says. “Even at a law firm, the company that cleans the office is an outside contractor.”

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David G. Savage covers the U.S. Supreme Court for the Los Angeles Times and writes regularly for the ABA Journal.