Avoiding Individual Liability for the HR Professional

This article begins with an overview of the federal laws under which HR professionals can be held personally liable for violation of employee rights and continues with a discussion of how they could be held liable under state statutes or the common law. The article then describes several circumstantial "danger zones" in which HR professionals should be particularly careful in avoiding even the appearance of impropriety. The article next turns to several legal issues: employer liability practices insurance (EPLI), employer indemnification of HR professionals, the issue of an HR professional retaining separate counsel when employment litigation is threatened or filed, and how to behave when litigation is possible, threatened or pending.

The Nature of the Risk

It is a good idea for HR professionals to ask themselves whether they can be held individually liable in any particular employment law situation. According to one survey, 23 percent of organizations polled had an individual named personally in an employment-related lawsuit, and in 16 percent of these organizations, HR professionals were named as defendants. Individual liability, also referred to as "personal liability," refers to the situation in which an individual's own assets may be used to satisfy a financial obligation; in this context, it is when an HR professional is found to be personally responsible for an employment-related judgment.

The ever-present friction between employers and employees has been addressed by the common law, by the rise of labor unions, by expansive statutory reforms and even by violent revolutions. Still, the struggle between employers and employees persists. HR professionals occupy the middle ground as both employees and representatives of the organization.

Several federal statutes provide for individual liability, either expressly or by court interpretation, for HR professionals involved in employment decisions and processes. State statutes may also provide for individual liability, and state statutory liability is sometimes greater than federal liability. In addition, there is the common law principle that persons should be held liable for their own torts, that is, a legally recognized wrong that injures a person or a person's property.

The existence of several federal and state statutes providing for individual liability creates danger zones for HR professionals. Other areas for concern exist when the HR professional becomes personally embroiled in, or invested in, an employment decision or process. See Individual Liability Is More Common Than Many Realize.

The keys to effectively managing the risk of an HR professional being held individually liable for an employment law violation are:

• Realizing the existence of the risk.
• Understanding the scope of the risk.
• Understanding ways to minimize the risk.
• Implementing strategies to minimize the risk.
• Realizing that the HR professional may have individual interests that are not congruent with the interests of his or her employer.
• Determining whether separate legal counsel for the HR professional is appropriate.

This process requires knowledge of the laws, practical business sense, a strong understanding of ethical behavior, and the ability and willingness to fight for what is right. In the vast majority of situations, following such an approach results in the HR professional not being held individually liable and also being protected from the cost of individual attorney fees.

Federal Laws

It is actually rare for individual liability to be imposed on HR professionals. Several federal statutes dictate situations where HR professionals may be liable by virtue of the functions they perform. See

The FLSA and the FMLA

The Fair Labor Standards Act of 1938 (FLSA) and the Family and Medical Leave Act of 1993 (FMLA) have both been construed by courts to provide for individual liability. Under the FLSA, an individual may be deemed an "employer" if he or she exercises, or is authorized to exercise, a significant degree of authority over an employee's wages or hours. The FMLA is modeled in many respects after the FLSA. Therefore, what holds under the FLSA may also hold under the FMLA. Additionally, the FMLA provides for liability against persons interfering with FMLA rights, which is a sort of anti-retaliation provision.

The FLSA is the cornerstone of wage and hour law in the United States. The recognized rule is that an individual supervisor will be liable under the FLSA if he or she exercised or had sufficient control over the conditions and terms of the worker's employment. See Personal Liability Against Owner Is Possible Under FLSA and Court Explains Personal Liability Exposure Under the FLSA.

Sufficient control usually equates to the power to hire, fire, discipline, determine rates of pay or make working schedules. An HR professional with no real power or control over these matters would likely not be held individually liable under the FLSA.  This is discussed in Flannigan v. Vulcan Power Group, L.L.C., in which the court explained that both the FLSA and the New York Labor Law support individual liability for wage and hour violations.

The FMLA is a federal law that requires larger employers to provide 12 weeks of job-protected leave to employees who, among other things, have serious health conditions or family members with serious health conditions. The FMLA also covers certain military-related leave situations. Under the FMLA, the term "employer" includes "any person who acts, directly or indirectly, in the interest of an employer to any of the employees of such employer."¹ This definition has allowed supervisors and HR managers to be included in FMLA-based suits.

ERISA, COBRA and IRCA

There are three other federal statutes of particular note in the area of individual liability:

• Employee Retirement Income Security Act of 1974 (ERISA). ERISA governs pension benefit plans (including defined benefit plans and defined contribution plans, such as 401(k) plans) and welfare benefit plans (such as health insurance and severance pay plans). Plan administrators who fail or refuse to comply with information requests or who fail to file an annual report or other required information may be held individually liable. Additionally, a person who exercises discretion under an ERISA plan is deemed a fiduciary and can be held personally liable for breach of fiduciary duty when an ERISA benefit is improperly denied or interfered with.
• Comprehensive Omnibus Budget Reconciliation Act of 1985 (COBRA). COBRA amended ERISA to provide for the continuation of health care coverage for employees and their dependents or other qualified beneficiaries (for a limited period of time) if certain events would otherwise result in a reduction in benefits. Plan administrators may be held personally liable for failing to give COBRA notifications to employees and other qualified beneficiaries.
• Immigration Control and Reform Act of 1986 (IRCA). This is the foundational federal law in the immigration area. IRCA requires all U.S. employers, regardless of size, to complete Form I-9 upon hiring a new employee to work in the United States. Reverification of eligibility for employment in the U.S. may also be required under certain circumstances. The task of properly completing Forms I-9 is, in most cases, a simple matter of carefully reading and following the detailed written instructions. However, there are situations in which it is helpful to seek guidance beyond the written instructions for the Form I-9—especially with respect to the recent changes in procedures concerning it. The federal government also adopted an electronic verification system called E-Verify to simplify the task and to enhance enforcement of federal immigration law. Persons completing the Form I-9 or using the E-Verify system should take care to make sure it is done correctly. There is individual liability for incorrectly filling out the form, plus individual liability for knowingly hiring an unauthorized worker. IRCA liability can also encompass criminal charges.

State Statutes and Common Law

Although individual liability under state statutes tends to mirror liability under similar federal statutes, it is not a requirement. Differences occur in several states, with the state statute casting a wider net of individual liability than its federal counterpart. HR professionals should be familiar with the laws of the states where their employers do business.

In addition, under the common law, all individuals are liable for their own actions that injure a person or a person's property.  It should be somewhat obvious from the descriptions below that adhering to the ethics of being an HR professional, recognizing common courtesies, and treating employees respectfully will go a long way toward protecting HR professionals from problems in this area:

• Civil assault. An assault can occur when there is an intentional attempt or threat to inflict injury on another person coupled with an apparent ability to cause harm, which then creates a reasonable apprehension of bodily harm or offensive contact in the victim. Unlike battery, assault does not require actual touching. Respectfully discussing issues and avoiding threats of injury toward others minimizes concerns in this area.
• Civil battery. Battery can occur when intentional touching of another person in a harmful or offensive manner occurs without the victim's consent. Not touching others in a disrespectful manner (such as taking the employee by the wrist and leading him or her into the office to be reprimanded, patting the employee on the head, or grabbing his or her arm) minimizes concerns here.
• Defamation. Although there are significant immunities and defenses to libel and slander, HR professionals should be careful about making oral or written statements that disparage an employee in terms of work performance, criminal conduct or communicable diseases. Providing honest information about employees to persons with a need to know may be a big part of an HR professional's job description, so concerns of defamation often arise in the context of job references. It is a best practice to document references given and the basis for the reference.
• Interference with a contract or prospective business advantage. When terminating employment or enforcing a noncompetition agreement, HR professionals should be careful not to appear as though they are acting out of personal animus rather than in the interests of the employer.
• Intentional or negligent infliction of emotional distress, also known as outrageous conduct. The job of being an HR professional is not a license to play God or Nemesis. The strategy of making things so miserable for an employee that she or he quits—as a way of avoiding the problems associated with involuntary termination—is a good way to be sued individually.
• Invasion of privacy. HR professionals should treat all employee information with sensitivity and on a need-to-know basis. See Managing Workplace Privacy.
• False imprisonment. False imprisonment can occur when a person is restrained from leaving an area without consent and the authority of law. This issue can arise—for example— if an employee is detained without his or her consent in an office and questioned about violations of company policy. To avoid issues in this area, HR professionals should not prevent employees from leaving the premises. If criminal conduct, such as theft or possession of illegal drugs, has occurred on employer premises, then that situation is best referred to the police absent unusual circumstances.

Situations That Give Rise to Claims

There are a number of reasons a disgruntled employee may target an individual, even an HR professional, for individual liability. These include:

• The employee blames the manager or HR professional for not doing his or her job of preventing unlawful employment actions. This rationale is based on the concept of negligence.
• The employee blames the manager or HR professional for being part of the problem rather than part of the solution. For example, an employee takes a question about FMLA leave to a manager or HR professional and is promptly targeted for termination based on some pretext in the employee's performance. This rationale is based on the concept of the manager or HR professional being an active participant, or tortfeasor, in the unlawful action.
• The employee is just lashing out at the "messenger" of the bad news. Suing managers and HR professionals individually may be a milder version of what employees really want to do.

Suing an individual as well as the individual's employer may enhance the ability of the employee to obtain a favorable settlement:

• The employer, or its insurance carrier, may be required to pay for a separate attorney for the HR professional. The increased cost of defense equates to a reason to settle.
• The person sued individually will probably be much more enthusiastic about the employer settling the case when his or her own assets are on the line than if he or she could stand defiantly on principle while only the employer was at risk of suffering a judgment. Thus, the employee may have an advocate for his or her position within the ranks of the opposition.
• The individual sued may appear particularly despicable to the judge and jury, which tends to rub off on the employer. Whereas it is easy to have a negative impression of "big oil," "big tobacco," "big pharmaceutical" or "big government," there is an enhancement of that effect when the judge and jury can pin a prejudice on the face of an individual sitting before them as an individual defendant. Corporations do not sweat; humans do. Demonizing is most effective when the demon has a name and a face—when the whole argument can be summed up in a person's name: for example, "Madoff/Ponzi," "Halliburton/Cheney" or "Watergate/Nixon."
• There may even be tax incentives to suing an individual. If the settlement or judgment is collected against the individual and not the employer, the settlement proceeds may not be subject to tax withholding for Social Security and Medicare.

Circumstantial Danger Zones for HR Professionals

The personal and often emotional nature of workplace litigation has led many former employees to target not merely the company but also specific managers or co-workers with legal claims. The function of the HR professional is to look after the interests of others—employees and employers. But HR professionals also need to look after their own interests.

HR professionals are at risk of being accused by an employee's attorney of being personally liable in a multitude of areas that are part of their basic job description. The statutes and case law point to several circumstances that are super danger zones for HR professionals:

• The HR professional not acting fairly and appropriately. Although HR professionals do have difficult tasks of denying benefits, disciplining employees and terminating employees, they should always perform these tasks in a fair and professional manner—even if that means standing up to upper management. This is the essence of being a professional.  (See Narodetsky v. Cardone Industries, Inc. as a cautionary example, in which an HR manager and benefits manager were accused of deliberately interfering with an employee's federal rights under ERISA, COBRA and the FMLA.)
• A personal animus of the HR professional against the employee. HR professionals must be scrupulous in treating employees fairly even if they do not like them.
• A personal animus of the employee against the HR professional. If an HR professional senses that an employee bears some particular grudge against him or her, the HR professional should attempt to resolve the situation before a conflict arises.
• A false representation by the HR professional to the employee made behind the back of the employer. HR professionals should not promise more than they can deliver. This goes for representations to the employer as well as to the employee. No one likes feeling like he or she has been lied to.
• Being the individual who provides references regarding departed employees.

Employer Practices Liability Insurance

Most general liability insurance policies do not cover employment law violations. Therefore, if employers want such coverage, they need to purchase a rider to their basic general liability policies. Many insurance companies provide such EPLI policies for an additional premium.

See: What is employment practice liability insurance?

HR professionals may or may not be covered under EPLI—it depends on the terms of the contract. It is important for HR professionals to look after their own interests by examining the employer's EPLI policies. EPLI coverage is typically renewed annually and contingent on fresh representations as to the potential liabilities of the employer. Therefore, this is an annual to-do item for the most senior HR professional in an organization.

Indemnification by Operation of Law

HR professionals may have the right of indemnification by operation of law. This right varies widely from one state to another. The basic idea is that when one person is acting just as another person instructed and authorized him or her to do, then the actor should be indemnified from any harm resulting from the consequences of those actions. However, the law of indemnification is a double-edged sword. The employee can also be required to indemnify the employer when it was the employee who acted out of line.

Individual Liability for HR Consultants

Some employers outsource certain HR functions to consultants. Generally, individual liability does not depend on the HR professional being deemed an employee, but rather is based on the nature of the work performed and the nature of the HR professional's actions.

HR professionals working on a consulting basis are probably less vulnerable to incurring individual liability than their employee counterparts. This conclusion is based on the reasons employees have for seeking individual liability—as described above—and on the fact that HR professionals working as consultants typically are not perceived as being synonymous with their employers.

So should HR professionals working as consultants obtain professional liability insurance? It depends. If the consultant is doing work that by nature is higher in risk (such as administering an ERISA plan), then the answer is probably yes. But if the consultant is merely drafting employee handbooks for review and possible adoption by organizational employees, then the answer is probably no. Some people—particularly those selling insurance—say that an HR professional of any stripe should never go without professional liability coverage. See What insurance should consultants have?

Though experience has shown that consulting HR professionals are rarely targeted for individual liability by an employee of the organization, a consulting HR professional who negligently performs contractual duties to his or her customer may be held liable for breach of those duties. The damages associated with such a breach may encompass the organization's liability to an employee. It is a business decision to be made by the HR consultant under the particular circumstances.

Endnote

¹ U.S. Department of Labor. (n.d.) Family and Medical Leave Act advisor. elaws. Retrieved from https://webapps.dol.gov/elaws/whd/fmla/3.aspx?Glossary_Word=EMPLOYER