BUSINESS LAW
     

Timothy M. Kaine, Richmond's mayor and an attorney for the plantiffs, successfully argued that Nationwide Insurance gave short shrift to predominately black neighborhoods.

photo by Mark Rhodes

But the jurors didn't agree. They found that the insurance company did discriminate against black homeowners in Richmond-area neighborhoods, and the court ordered the company to pay $100 million in punitive damages and $500,000 in compensatory damages. The plaintiffs had asked for twice that much, but they were happy with the result. "It is the understatement of the year to say we were very pleased," says Connie Chamberlin, executive director of Housing Opportunities Made Equal. "I think companies need to carefully evaluate their practices and the assumptions on which they're based. I think this is a good lesson."

If the verdict stands, it will be the largest civil rights award in the country, according to the U.S. Department of Housing and Urban Development. Nationwide plans to appeal the Richmond judgment, but even if a higher court overturns the decision, it still puts corporate America on notice that the stakes in discrimination suits are unpredictably high.

Discrimination complaints can come from customers, employees or ex-employees -- even from rejected job applicants. But businesses can avoid many of these suits by establishing and following clear and consistent procedures in areas such as employee and customer relations. They also need to realize that prevention is an ongoing effort, not a one-time fix. It requires continuous retraining of managers and employees and a regular review of company practices to root out hidden patterns of discrimination.

The first step, however, is obvious: Do the right thing. "We're dealing with the issue of what I like to refer to as good old-fashioned respect," says C.J. Trosclair, managing partner for Jackson, Lewis, Schnitzler & Krupman in Washington, D.C. "If you have respect ... and your managers constantly address issues when they see them, you don't have these problems."

Companies also need to stay on top of evolving legal requirements. New laws, like the 1990 Americans with Disabilities Act and the 1993 Family and Medical Leave Act, spawn years of litigation, and businesspeople need to understand the impact of the latest court rulings. This is especially true in Virginia, where employment law has gone through major revisions in the past few years.

"The law changes," says Mark Dare of the Northern Virginia law firm of Hazel & Thomas. "We do free seminars for our clients every year, and I guarantee you we have no problem filling the agenda with new material. It's so hard to keep up."

Bayard Harris, an employment law attorney from Roanoke, thinks one reason the laws are constantly evolving is that legislators see the workplace as a forum for social engineering. "Congress and the state legislatures have decided that there are insufficient tax dollars to cure all of society's ills, so they've decided, 'Let's take a look at [the workplace].' ... It's hard to regulate what goes on at home, but we can regulate the employer."

* * *

The case against Nationwide came in part from a series of "test" calls made to insurers in the Richmond area in 1995 and 1996. Housing Opportunities Made Equal used three pairs of similar homes, divided between black and white neighborhoods. In 15 paired calls to Nationwide agents, callers asking about homeowners insurance in mostly white neighborhoods received 12 quotes, while callers asking about black neighborhoods received six quotes, says Kaine, who is also Richmond's mayor.

"What we showed to the jury was that Nationwide had a corporate policy ... of giving short shrift to African-American neighborhoods," Kaine says.

Donna Sully, a former Housing Opportunities Made Equal employee and one of the original plaintiffs, owns a home on Edgewood Street in a predominately black neighborhood used in the tests. Sully was disappointed when she learned the results. "You're not ready to hear that you are being treated differently, even though the reality ... is that in this country, racism is very prevalent," she says. Sully's claim was eventually dismissed from the case because she wasn't actually seeking insurance.

Kaine and other lawyers argued that Nationwide charged more for policies sold in the city than in adjoining counties. They also said Nationwide's policy of excluding older homes had a disproportionate effect on minority neighborhoods.

Lawyers for the Columbus, Ohio-based company said agents simply targeted areas with the most new homes, where they had a greater opportunity for multi-line sales -- homeowners and auto insurance together, for instance. Residential growth is in Henrico and Chesterfield counties, not in Richmond. The insurer also criticized the tests as unscientific and denied that race was a reason for refusing to offer a policy. "Was there discrimination here? We didn't think so. A jury disagreed and we're appealing that," says Richmond attorney Arch Wallace, who helped with Nationwide's defense.

Wallace thinks the verdict has implications beyond the insurance industry. The plaintiffs argued that Nationwide's advertising and marketing campaign unfairly ignored minorities by using media with largely white audiences. That "disparate impact" theory has been applied in employment law, but never in marketing and advertising, Wallace says. "This is an activist application of the law. I think it ought to [generate] extreme concern for the whole business community, because everybody target-markets."

The Nationwide case also was unusual because the complaints were from customers: Most discrimination complaints against businesses come from employees. Employees have more to lose, customers can just walk away. But customer conflicts can wind up in court. In 1995, a woman and her two daughters sued Ross Stores for racial harassment, claiming a clerk at a Northern Virginia store was abusive after they tried to return a skirt for a refund. The case was eventually settled for $20,000, says the family's attorney, Helen Randolph of Arlington.

A much bigger judgment was awarded to three young black men who accused employees of an Eddie Bauer store in Greenbelt, Md., of false imprisonment and defamation. Security guards suspected them of shoplifting because one of the teens was wearing a shirt that came from the store. He had bought the shirt at the store the day before, so he couldn't produce a receipt. Guards made the teen take off the shirt, find his receipt and bring it back to the store to get his shirt back. The jury gave the customers $1 million.

Consumer litigation is "a growing area," Randolph says. "People are beginning to realize they can sue for that. 'Consumer racism' is the catchword. It's a civil rights violation not to let people shop."

* * *

Virginia's employment-at-will doctrine has traditionally allowed companies to fire workers for any reason or for no reason, but in the past few years that doctrine has been called into question. The uncertainty means employers must be especially cautious.

In 1994, the Virginia Supreme Court narrowed the at-will doctrine by ruling in favor of an employee who based a suit over wrongful discharge on a state public policy, the Virginia Human Rights Act. In that case, Lawanda Lockhart, former director of admissions at Commonwealth College's Richmond campus, said she was demoted and then fired after she complained about race discrimination at the school.

The following year, the General Assembly amended Virginia's Human Rights Act to prevent it from being used to support lawsuits like the one Lockhart filed. Those amendments withstood a 1997 Virginia Supreme Court ruling on a suit filed by Laura Doss, who said she was fired on her second day at Jamco Inc., a trucking company near Lynchburg, after her supervisors found out she was pregnant. She claimed sex discrimination and based her suit on the Human Rights Act. The court rejected her appeal, saying the assembly clearly meant to stop such lawsuits.

A case on appeal to the Virginia Supreme Court, though, will ask the court to restore an employee's right to sue in a similar situation. The plaintiff in that case, Deborah Conner, says she was wrongfully fired in 1995 after 19 years with the Fairfax County-based National Pest Control Association. Conner claimed that she was sexually harassed by co-workers, and was demoted and then fired after returning from maternity leave. She says she was dismissed in retaliation for her complaints about harassment.

Conner's suit was dismissed in Fairfax County Circuit Court last March, and she appealed to the Virginia Supreme Court. Conner's attorney, Elaine Charlson Bredehoft, says she wants the court to either allow other state statutes outside the Human Rights Act to be used to support such lawsuits, or to declare the General Assembly's amendments unconstitutional.

Sometimes a company can be hit with a lawsuit even when it is presumably trying to do the right thing. The Titan Corp. in Fairfax County lost a $350,000 judgment after laying off a white employee during a downsizing. The employee argued that he was laid off because the company knew the layoffs were having a bigger impact on women and minorities, according to the plaintiff's attorney, John Bredehoft. "He essentially got fired because he was a white man," Bredehoft says.

Some cases can drag on for years, as with the discrimination claims against Richmond-based electronics retailer Circuit City. The company has been fighting a series of courtroom battles that started in 1995 when employees filed race-discrimination claims. The company won a round when a federal appeals court set aside $272,000 in punitive damages last year. But the case is now being appealed to the U.S. Supreme Court.

* * *

No matter which direction case law takes, lawyers and consultants all preach prevention. Corporations trying to guard against discrimination claims should take this advice from the U.S. Supreme Court -- put your policies in writing.

Employers should have specific policies on workplace conduct and make sure everyone knows them, says Dare, the Hazel & Thomas attorney. The policy should name several people to whom an employee can bring a complaint. Having a written procedure in place is guidance the Supreme Court gave in two rulings issued last spring involving sexual harassment cases. "They said, 'If you do these things, and the employee does not follow the procedure, then you have a defense,'" Dare says.

Employment law attorney Harris says documentation is a lawyer's answer to almost every problem. If a manager has a good motive for dismissing or penalizing an employee, it's easier to prove. "The easiest cases are the ones where there is a strong document trail." Harris tells clients to make reasonable rules and to apply them consistently. "They should have reasons for why they're doing it, reasons that they can explain," he says.

Also, companies should move quickly when a complaint is made, because a delay can make the company look unresponsive, says attorney Trosclair. "It's paramount that you get in there and take action." Sometimes, employers can find themselves in a difficult spot when an employee tells them of misconduct by a co-worker in hopes that the problem can be dealt with quietly and without formal punishment. "That's the dilemma of dilemmas, because once you know, you must act," Trosclair says. "It's a tough deal."

Dare adds that companies should have regular, truthful, written performance evaluations. Employees fired for poor performance can confront the employer in court with a copy of an overly generous evaluation. "It happens all the time," he says. "If you can't get your [supervisors] to be candid in their employee reviews, then they shouldn't be doing them."

What it comes down to, says Southern States Cooperative Vice President Richard Sherman, is "good common sense, and treating people as you would want to be treated."

Still, Sherman's Richmond-based company has taken to heart the message about creating specific policies and sticking with them. To handle performance problems, for example, the company has a four-step process that starts with an informal discussion with the worker. Those who don't correct the problem at least know where they stand, Sherman says. "Nine times out of 10, these things don't make it" to dismissal, he says. "The best way to avoid any kind of claim is to be as fair as possible."

Supervisors know they must follow the policy. "If they come in and say this is a problem and don't have documentation, they've got to live with a problem until they get it straightened out."

To make sure everyone is following its policies against discrimination, Waynesboro-based Wayn-Tex Inc. started training sessions for its managers last fall. The 545-employee textile maker will extend the seminars to all workers this year and then repeat it annually, says human resources manager Phoebe Knight. "It'll be an ongoing topic, just like safety and quality."

The strategies of companies like Southern States and Wayn-Tex Inc. work, attorneys say. The time and money devoted to developing written policies, applying them consistently, training managers and creating company-wide awareness of discriminatory conduct is well-spent if it keeps plaintiffs' lawyers at bay.

Anti-discrimination policies also can help keep a work force intact during times of low unemployment, Knight says. Wayn-Tex has a kind of generation gap. Older employees are used to a certain level of teasing from co-workers and don't consider it harassment. But a younger generation is coming in with its own ideas of appearance and conduct, she says. "If they feel like they're being made fun of because of their lip ring or nose ring, they're not going to tolerate it."

Knight says the company went through a minor crisis recently when a supervisor banned body jewelry. "It was a knee-jerk reaction, and we corrected it," she says. The company now has a new policy. "As long as [body jewelry] doesn't interfere with their work, it's not our problem," Knight says. "We're having a tough enough time retaining employees."

© FEBRUARY 1999, VIRGINIA BUSINESS MAGAZINE