Labor & Employment Newsletter - February 2020

Date: February 6, 2020

Adopting Anti-Harassment Policies and Conduct Training at the Board of Directors Level

By: Jennifer S. Jackman, Esq.

With the New Year underway, it is a good time to review policies to determine what best practices may be missing. During this review, organizations should ensure that they have adopted anti-harassment policies for their boards of directors. Often times, these directors interact with employees and bad conduct by the directors toward employees can create liability for the employees.

As a result of the #metoo movement, the level of tolerance for bad conduct at any level has been significantly reduced. Organizations need to review not only their employment policies, but also their board policies, to ensure that standards of conduct are clearly established. It is now a best practice now to have an anti-harassment policy adopted at the board level and to conduct board training as to the expected conduct, as well as a refresher on fiduciary duties.

A strong policy defines harassment and discrimination and covers conduct between board members and employees. Many organizations are also prohibiting harassment and discrimination among board members. The anti-harassment policy should explain why the policy is being adopted, set forth a commitment to providing a professional environment free of harassment and discrimination, identify who is covered by the policy, where it applies, and set forth the standards expected and the consequences of non-compliant behavior. In addition, the policy should outline the complaint and investigation process.

Once the anti-harassment policy is adopted, there should be training on the policy to all members of the board of directors, committee chairs and any other non-employee who is covered by the policy. For directors, this is a good time to conduct training as to their fiduciary duties and what the board’s responsibility is if they receive a complaint about a high level executive. A failure of a board to take appropriate action can lead to loss of value of stock and shareholder derivative actions for breach of fiduciary duties. Thus, proper training so board members fully understand what harassment is, the company’s harassment policies, and what their responsibilities are in the event of a complaint by an employee is recommended annually.

Please contact Jennifer Jackman if your company needs help adopting a board of director anti-harassment policy or conducting training.

The Leading Role a Director’s Fiduciary Duty Plays in Minimizing D&O Claims

By:  Tiffany M. Releford, Esq.

Directors of corporations, non-profit associations/organizations, community associations, etc., are fiduciaries. What does that mean?  In short, a fiduciary is one in a special capacity in which he or she has control of and responsibility for the property of another. Where a fiduciary relationship exists, the law imposes the highest standard of responsibility that our legal system provides.

The duties of a fiduciary can generally be broken down into three parts: (1) a duty of care, (2) a duty of good faith, and (3) a duty of loyalty. The duty of care requires fiduciaries to invest time and attention to make informed and careful decisions that are not wasteful, arbitrary, or capricious. The duty of good faith requires directors to be honest. Conscious disregard to a director’s duty that results in a failure to act in accordance with a director’s responsibilities is a lack of good faith. Lastly, there is the duty of loyalty. The duty of loyalty requires directors to act in good faith and in the best interest of the corporation, organization, or association. In other words, directors shall not take advantage of their positions to advance their own personal or financial interests, or the interests of someone else.

Failure of a director to abide by the above duties will get a director into trouble. So what happens if a director finds him/herself in hot water?  Usually, the corporation, association, or organization has Directors and Officers (D&O) insurance which is a source of protection for directors against liability. D&O insurance can cover defense costs from criminal, civil, administrative, and regulatory investigations and trials. The most frequent D&O claims are related to employment issues arising from discrimination, harassment, failure to comply with workplace laws, wrongful termination, invasion of privacy, and defamation. In fact, most D&O claims come from dissatisfied employees as opposed to shareholders.

While D&O insurance is vital, it does not always protect directors from liability. There are instances where directors may not be protected by D&O insurance and could be held personally liable for their acts and omissions.  For example, D&O insurance typically does not cover intentional illegal acts such as criminal fraud or insured versus insured lawsuits where both parties are covered under the same D&O policy. Therefore, while having D&O coverage provides some level of security to directors, the best protection is for directors to be cognizant of their fiduciary duties so they are proactive in avoiding D&O claims.

To do this, a director must be informed and exercise due diligence. Decisions by directors based on insufficient facts can get the director into trouble. Directors should also be aware of their fiduciary duties in specific jurisdictions, as many states have articulated duties of directors into corporate statutes.

As stated above, directors must understand the need to be well informed for their own protection. Each director has a duty to exercise reasonable care in the performance of his/her responsibilities. If a director does not understand the scope of the director’s authority, that director may do something that is clearly outside of his/her authority which may result in a D&O claim. This is why it is imperative that a director understand the bylaws of his/her corporation, organization, or association, as well as any applicable ethical obligations or codes of conduct. In addition, a director should not be hesitant to contact the appropriate professionals for guidance on certain matters such as legal or financial affairs. Directors should document and keep detailed records of meeting minutes and decisions in the event a decision is challenged. Finally, directors should avoid doing anything that creates an actual or perceived conflict of interest.

Directors have a hefty burden when it comes to corporate governance, but with knowledge and due diligence, they can responsibly fulfill their roles and minimize the potential risks of D&O claims.

For more information on this topic, contact Tiffany Releford.

Don’t Fall For the Trap

By: Steven E. Bers, Esq.

It is so easy to fall into the trap: an employee comes to a member of the Board of Directors with a complaint about some job concern and gets the director to “bite.”   Out of an understandable, or even noble, desire to be a fixer, a director may assure the employee that he will address the concern, and take care of it. But is that a good judgment response?

There is truly something seductive about employment matters – a feeling by nonprofessionals that they are fully qualified to address HR matters which may appear straightforward, but which in fact may involve complicated EEOC, NLRB or contract implications. Sometimes directors who would never think of involving themselves in other kinds of routine staff-appropriate matters may nevertheless be seduced into entering the employment weeds, rather than respecting the Board’s best role as a policy body.

The train jumps the track in many ways when directors inject themselves into employment matters that can be capably addressed by executives, staff and HR experts. First, anything a director says may later be inaccurately portrayed. A director that expresses any level of agreement that an employee has a legitimate claim immediately undermines the natural process of a complaint working through the chain of command. Seldom does a director get all the facts from the employee. Engaging in dialogue may result in an  employee feeling improperly empowered, validated, or even excused from normal chain accountability – even untouchable.

Also, as soon as the director bites, the director becomes a witness, whose statements can often be later mischaracterized, and given great weight as an agent speaking for the employer. An improper word use, slip of the tongue or responsive email or text can kick the door open to a demand, in litigation, to see all the director’s emails and texts. Few directors will enjoy being deposed about an interaction, with a now-adverse employee, concerning what actions, inactions, or assurances and statements the director did, or did not, make. Comfort only lies in the ability to say, “I correctly and responsibly advised the employee that she should bring the matter to HR, as the proper process – and nothing more.”

But one may ask, “What about whistleblowers for illegal or unethical issues or complaints about HR or the Executive Director or CEO?”  Our experience is that the vast majority of employee direct Board contacts are not of this genre, but are more akin to individualized concerns.  That said, if a Director does identify a complaint to involve unlawful or illegal action, or impropriety by the highest staff member or officer, the director still should not “bite” by engaging in dialogue. Instead, to somewhat verify the substantiality of the concern as one that is very serious, and to avoid later mischaracterization, the best protection is that the employee be told to place any such matter in writing. Employees with well-believed and valid concerns should have no problem doing so. The writing would then be shared with the Board as a whole.

Finally, directors should not fall into the trap of thinking matters are stated “off the record” or “confidentially, you did not hear it from me.”  No such safe harbor exists. Employees prefacing matters in this way, as described above, should likewise be directed to the chain of command.  

For questions or concern regarding the steps to take should an issue such as this arise, contact Steven E. Bers.

Board Members with Boundary Issues – A Significant Risk to the Organization

By Peter D. Guattery, Esq.

Jim sits on the board of a large non-profit, a position he has held for several years. During that time he became friends with the CEO, playing golf with him, joining him and his wife for dinner at least once a month, and visiting the CEO at his office during the week. Recently, several complaints of sexual harassment filtered up to the board. Jim was adamant that his “friend” would not have done what was alleged. “The claimants are all liars, and this is a calculated smear job,” Jim said at the most recent meeting, noting that he had assurances from the CEO that it was all untrue. He also accused the board president of “plotting a coup.”

Jim’s wife Brenda sits on the board of a local Christian organization providing shelter and food for the homeless on a non-denominational basis. Brenda and several other board members were deeply concerned when the organization recently hired a Sikh as the organization’s CFO. The top tier positions in the organization, they felt, should go someone who held their particular religious faith. They also challenged the board president to develop a policy to put this rule into effect, threatening to withhold their support for her if she refused.

Both scenarios may seem oversimplified, but they reflect real world situations where a board member misunderstands the scope of their duty and responsibilities as a steward and fiduciary of the organization. Board members owe a duty to the organization to act in good faith, with due care and loyalty to its interests. They likewise owe the organization confidentiality and must act to protect the organization from claims and liabilities where possible.

In Jim’s case, his friendship with the CEO is interfering with his, and perhaps the Board’s, ability to directly address allegations, which may not only present legal liability to the organization but damage to the organization’s public reputation as well. Any allegations of wrong doing should be reviewed and investigated as appropriate. To summarily reject the allegations, and accuse other members of the board of acting in bad faith subverts these obligations. Likewise, his comments suggest that confidential information from the board meetings has been shared with the CEO. If true, that would represent another breach of Jim’s fiduciary obligations. In this situation, Jim needs to be reminded of his obligations and if he is unable to act fairly on behalf of the organization due to his friendship with the CEO, he needs to recuse himself.

Brenda’s case presents a somewhat different issue, but should raise equal concerns. On its face, Brenda’s asserted concern that the senior level positions within the organization do not reflect the charity’s Christian faith, may appear reasonably related to the mission of the organization. The issue is more complex, however, and requires consideration of both the nature of the organization and the position in question, lest the refusal to hire an employee based on his or her religion, results in a discrimination claim.

While it is true that Title VII of the Civil Rights Act of 1964, as amended, has an exclusion for religious corporations, associations, educational institutions and societies in hiring persons doing work “connected with carrying on” the entity’s activities, the precise scope of this provision as it relates to religiously affiliated charities is not always clear.

The objections raised by Brenda and some of her colleagues, however, raise other questions:  Is religious identity even necessary to a position that involves the organization’s finances?  Is the organization better served by having the most capable person in the role regardless of the person’s religious identity?  Is the decision really one that should be made by the CEO, not the board members, given her responsibility of oversight of the position and general responsibilities for the management of the organization?  From this vantage point, would dictating the religious identity of the CFO be in the best interest of the organization and does it usurp, for the board, a function that really resides with the CEO, absent some provision of the bylaws vesting the authority in the board?

The question that Brenda and her colleagues raised should be dealt with on a more fundamental level, without targeting a specific hire. The process also requires respect for those to whom the authority to hire is delegated, with minimal interference from the board. The seductive lure of becoming involved in personnel decisions, as my colleague Steve Bers’ article discusses, is all too alluring quicksand, which puts the organization at risk. Here too, overreaching takes the board outside of its normal oversight and stewardship role. The results can be destabilizing, particularly if other members of the board feel threatened in the process.

To better understand these risks and whether actions taken by board members are overreaching, please contact Peter D. Guattery for more information.