You Don’t Get a Bite at the Big Dog: Texas Court Rules that Injured Worker CannotWhat if your employee plaintiff sues you and then demands to take the deposition of your company CEO or some other high-level corporate executive who has no personal knowledge about the facts of the case? No one would be excited about that prospect. Fortunately, a Texas appellate court recently ruled that high-level executives can be put off-limits for deposition unless they have particular, personal knowledge of the events in question. The decision, In re Newport Classic Homes, is an important one for companies (even if they are not in Texas) to remember if they are ever faced with a request for an “apex deposition.”

What is an Apex Deposition?

We all know that depositions are a discovery tool used to get a witness’s testimony under oath. Sometimes a plaintiff seeks a deposition of a company’s CEO or high-ranking executives who have no personal knowledge of the events in question – commonly referred to as “apex depositions.” A company’s CEO may know a lot about the company, but have zero personal knowledge of the events in the lawsuit. Plaintiffs nonetheless sometimes pursue the deposition of a high-ranking individual for a variety of reasons – some legitimate (garnering testimony that could be useful) and others maybe not as legitimate (as harassment or a veiled pressure tactic to compel a settlement). The apex doctrine is intended to direct discovery to those at lower levels with particular, personal knowledge of a dispute, as well as protect high-level executives from harassing and time-consuming depositions.

Background

Newport Classic Homes was a general contractor on a project, and Marcus Hiles was its CEO. The injured plaintiff worked for a subcontractor on the project and suffered a workplace injury. He sued Newport, alleging that it had contractual and actual control of the worksite. The plaintiff sought to depose Hiles, which triggered Newport’s motion to prevent the deposition and the plaintiff’s motion to compel. Hiles stated that he did not have any unique or superior knowledge of any facts or evidence surrounding the construction project or the incident. In fact, Hiles said the only information he would have was what others at Newport told him. The trial court, however, granted the request to depose Hiles, leading Newport to seek an immediate review of that order.

Court of Appeals Says No

The Texas State Court of Appeals reversed the trial court and found that Hiles did not have the particular personal knowledge necessary to warrant a deposition. The court stated that the plaintiff’s justification was “nothing more than the simple, obvious recognition that the highest-ranking corporate officer of any corporation has the ultimate responsibility for all corporate decisions.” Examining a previous Texas Supreme Court ruling about the issue of when to permit the deposition of a corporate president or high-level corporate official, the court concluded that the “unique or superior knowledge” threshold requires a showing “beyond mere relevance … that a high-level executive is the only person with personal knowledge of the information sought” or possesses such knowledge in greater quality or quantity than anyone else. To be sure, “some knowledge” is not enough as it would make the apex discovery indistinguishable from the scope of general discovery. Nor is knowledge of company policies sufficient. The court examined the deposition of another Newport employee that described what Hiles would know and concluded that the CEO simply did not have “unique or superior personal knowledge” to justify his deposition and that the plaintiff could obtain all necessary discovery through less intrusive means.

Takeaways

The opinion serves as a strong arrow in the quiver for a defendant to avoid having their high-level executives deposed. Each jurisdiction (and each individual judge) varies on the interpretation of the apex deposition principle, but most jurisdictions have developed law requiring some type of unique and special knowledge similar to the Texas court. Apex deposition requests could be encountered in litigation involving a discrimination claim or a workplace injury claim, and a defending company should carefully evaluate whether the requested deponent has the unique and superior personal knowledge to really warrant being deposed. Unless a plaintiff can show that type of particular knowledge, the deposition should be seen as nothing more than improper harassment.

Revamping Your Anti-Harassment ProgramsIn the wake of the #MeToo movement, I have clients wanting to know what they can do both to improve their workplace and protect themselves. They all have good policies and regularly train supervisors and employees on them. So what’s next? Although there is no silver bullet, I suggest you start with the following three things.

Review Your EEO Policy

Although most EEO policies are pretty straightforward, they can always use a little polishing. Does the policy mention all of the protected categories that apply to all of your locations? As a company grows, it can find itself with employees in states or municipalities that have classifications that are not covered in the federal laws. Many states have laws explicitly prohibiting discrimination based on sexual orientation and gender identity. Additionally, a number of federal circuit courts have ruled that Title VII’s prohibition against sex discrimination also covers discrimination based on sexual orientation or gender identity. Then there are municipalities that have covered even more categories. For example, Washington, D.C.’s Human Rights Law prohibits discrimination based on marital status, personal appearance, family responsibilities, matriculation and political affiliation.  Be sure your EEO policy is keeping up.

Review Your Harassment Policy

You need to update your harassment policy like you are updating your EEO policy. In addition to making sure the protected categories are broad enough, think about beefing up your reporting processes.

For years I have preached to clients that they need to have centralized reporting rather than having employees report to any supervisor. It is not that I want to make it hard to report—however, front line supervisors are in a tough spot. They may not have the skills to handle a complaint. Also, front line supervisors are more likely to know a lot about the complainant and the alleged perpetrator and handle it themselves. You don’t want someone discounting a report because “everyone knows the complainant is a liar” or “I know he didn’t mean anything by that.” Those are not good legal defenses.

I am coming to the conclusion that reporting hotlines, including the ability to report anonymously, may be the best options. Properly run hotlines get reports to the right people sooner. Also, if someone has the ability to report anonymously, it makes a later argument that he or she didn’t want to report because they would suffer retaliation a lot less convincing. Investigating an anonymous report presents challenges, but I think it is better to investigate what you can.

And another thing—really think about whether you want to say you have a zero tolerance policy. I find that is easily misinterpreted to mean that anyone found to have violated the harassment policy will be terminated. Is that really what you mean? I find that sexual harassment policy violations can come in a lot of different packages, ranging from unintended, thoughtless comments to boorish behavior to sexual assault. Although you can decide that you will treat all of those events the same, do you want to? In some ways, such a one-size-fits-all approach discourages complaints about behavior that we want to change, but that doesn’t deserve termination.

Revisit Your Training

Train people, and track it. New employees and new supervisors should complete training either before or shortly after they start. Everyone should go through training of some sort periodically. California requires everyone to be trained at least every two years. The State of New York has just enacted a law  that requires employers to provide annual sexual harassment prevention training.

What should your harassment training look like? New York’s new law comes with model training, including minimum standards, for employers to use. Saying that you met those standards, even if you didn’t have to, wouldn’t be a bad fact in defending a claim. So, even if you don’t have employees in New York, it may be worth looking at this material to see if there are parts you want to use.

Get company leadership on board. Having senior leadership (not just HR) involved in training gets employees’ attention and sends the message that this is important. It also gives you the opportunity to talk about workplace culture and respect for each other—more than just saying “don’t harass each other.”

Get feedback from the participants. Give them a chance to ask questions or take a test to be sure they got the message. Send a follow-up message to get feedback and see what stuck.

In a decision that could have employers rethinking how they offer employees a severance agreement, in McClellan v. Midwest Machining, Inc. the Sixth Circuit held that former employees seeking to void severance agreements do not have to give the severance pay back before filing suit under Title VII or the Equal Pay Act.

Factual Summary

Tender Me This: Sixth Circuit Holds Employees Don’t Have to Give Severance Money Back before Filing Title VII or EPA LawsuitThe facts of this case help give this legal holding some flavor. In late August 2015, Jena McClellan informed her employer, Midwest Machining, Inc., that she was pregnant. After doing so, McClellan says her supervisor started making negative comments about her pregnancy and was annoyed about the pre-natal doctor’s appointments. About three months later, Midwest Machining terminated her. The decision does not provide the articulated reason for termination.

On the date of her termination, the company’s president called McClellan into his office, gave her a severance agreement, and said that she “needed to sign then if [she] wanted any severance.” The door was shut to his office, and McClellan said she did not feel free to leave. The two reviewed the agreement together, but McClellan says the president did so very quickly, did not ensure that she understood the agreement, and used a “raised” tone during the entire meeting.

McClellan testified that she felt pressured and bullied, and she signed the agreement without the benefit of a lawyer’s counsel. The agreement waived all of her claims. McClellan later testified that she did not understand that the claims she was waiving included discrimination claims; she thought it was only claims for unpaid wages and benefits. Midwest Machining paid McClellan $4,000 in exchange for signing the agreement, and she accepted the money.

Summary Judgment Initially Granted to Employer

McClellan filed an EEOC charge claiming Midwest Machining discriminated against her, and she received her right-to-sue letter. On November 6, 2016, about a year after her termination, she finally met with an attorney, who immediately filed a lawsuit alleging pregnancy discrimination in violation of the Pregnancy Discrimination Act (which is part of Title VII) and pay discrimination in violation of the Equal Pay Act (EPA), among other claims.

Midwest Machining’s counsel informed McClellan’s lawyer of the release in the severance agreement. McClellan, at the direction of her lawyer, then sent a letter (about three weeks after the suit was filed) stating that she was rescinding the severance agreement. She enclosed a $4,000 check, the amount of the severance.

Midwest Machining responded by returning the check to McClellan, stating there was no legal basis for her to rescind the severance agreement. A couple of months later, Midwest Machining moved for summary judgment because McClellan did not “tender back” the $4,000 before she actually filed suit. After some legal wrangling, the trial court eventually agreed, relying on the common law “tender-back doctrine,” which provides that “even if a party signs a release under duress,” she must return the severance monies before she can file a lawsuit. The district court held that even if McClellan signed the severance agreement under duress (a disputed issue of fact), she did not “tender back” the severance money before she filed suit. Therefore, the district court held that she had ratified the contract waiving her claims and her lawsuit had to be dismissed.

Sixth Circuit Reverses

McClellan appealed to the Sixth Circuit, which reversed, holding that a plaintiff “is not required” to give back the severance monies before bringing claims for violations of Title VII or the EPA. The Sixth Circuit noted its concern – as expressed by other courts – that the employees would have spent their severance money already and would not be able to pay it back.

“[W]e worry that requiring recently-discharged employees to return their severance before they can bring claims under Title VII and the EPA would serve only to protect malfeasant employers at the expense of employees’ statutory protections at the very time that those employees are most economically vulnerable.”

As opposed to being a bar to suit, under the Sixth Circuit’s holding, the amount of the severance is to be deducted from any judgment awarded to a plaintiff-employee. Other federal circuits have similar holdings involving other federal employment statutes. The Sixth Circuit sent the case back to the district court for further proceedings. A dissent was filed, arguing that the case should have been remanded for further fact finding on the “tender-back” doctrine and ratification of the contract.

Takeaways

Employers should not overreact to this decision as it does not mean that severance agreements are a waste of money. This decision only addresses what happens when an employee claims duress and seeks to void the severance agreement. The key is to offer severance in a way to avoid a claim of duress.

Perhaps the biggest takeaway from this decision is don’t pressure (or look like you are pressuring) separating employees to sign severance agreements. Make sure that nothing about the circumstances surrounding the severance offer could later be used to show that the employee was under duress, fraudulently induced to sign the agreement, or any other act that would give the employee an argument to claim the contract was voidable.

Assuming McClellan’s story is true – the president of a company tells a departing employee that she has to sign the agreement that day if she wants to receive her severance – what can we learn?

  • Remember your goal is to get the employee to sign the agreement (and release any claims). The situation will be uncomfortable because the employee is losing a job, but be nice. If the company representative is intimidating or could otherwise be characterized as a bully—maybe use someone else to deliver the message. It is usually best to have two people (so if the employee later accuses someone of bad behavior, the company has a witness).
  • Give the employee a reasonable amount of time to review the agreement. If the employee is age 40 or older, follow the Older Worker’s Benefits Protection Act requirements and give the employee at least 21 days to review the agreement and seven days to revoke after signing. If the employee is not yet age 40, then give a reasonable time—say five days. Keep in mind that what is reasonable can change based on the circumstances.  Five days on Monday gives the employee a week to consult a lawyer.  Five days on Friday before a holiday weekend may not be a reasonable amount of time.
  • Allow the employee to take the agreement home to review. Think of it from the employee’s perspective—would you feel pressured or fully understand an agreement that gives up your rights while the company president is standing over your shoulder?
  • Encourage the employee to consult a lawyer as needed.

Even if you follow all of these practices, if an employee claims she was pressured to sign a severance agreement under duress and argues that the contract is voidable, understand the employee does not have to give the severance money back before filing a Title VII or EPA lawsuit, at least in the Sixth Circuit.