For those of you who managed to get away and have not kept up on your advance sheets this summer, August brought an interesting (and colorful) Title VII decision from the Southern District concerning a seemingly simple issue many of us face, but as to which there may be no clear answer: Who is the employer?

The defendant in St. Jean v. Orient-Express Hotels1 is a U.S. hotel and resort company that was sued in New York for sexual harassment—the result of a kiss on a beach in St. Maarten. By itself, this is perhaps not such an unusual outcome. These days, U.S. employers may be sued for alleged sexual harassment that occurs anywhere in the world, if the employee is a U.S. citizen, because Title VII and most of the other federal anti-bias laws have explicit extraterritorial effect.

The twist here is that the plaintiff employee was employed not by the defendant, but by a local Netherlands Antilles company. That company was, in turn, a subsidiary of a Bermuda company, of which the defendant was also an affiliate. So, the two employers were sister companies, subsidiaries of the same parent. To the U.S. employer, there was something viscerally counterintuitive about the situation.

The issue of who is the employer arises in many contexts. For example, a "whistleblower" employee of a U.S. company's foreign subsidiary, who is based overseas, may claim that she was fired in retaliation for alleging wrongdoing and seek to sue the U.S. parent under the Sarbanes-Oxley Act, claiming that the U.S. parent made the decision to fire.

Or, an employee of a small U.S. subsidiary of a large foreign company may claim that the foreign parent directed and oversaw a U.S. work force reduction that targeted older workers. The company may keep its personnel records "in the cloud," and personnel records may be accessible to the overseas parent. She may sue the foreign parent, claiming it is a joint employer, and seek discovery of its overseas employment practices to prove that it discriminates overseas, and, it follows, it may discriminate in the United States.

In St. Jean, the plaintiff was an American citizen. While she had a residence in Connecticut, she resided and worked on the island of St. Maarten in the Dutch Antilles for Cupecoy Village Development N.V. Cupecoy is located in St. Maarten, is incorporated under Dutch law, and manages Porto Cupecoy, a luxury residential marina in St. Maarten.

Cupecoy, in turn, is a subsidiary of Bermuda-based Orient-Express Hotels Ltd. (OEH Ltd.), which is engaged in owning and managing luxury properties in the leisure and tourism sector.

The plaintiff alleged that Richard Seay, Cupecoy's director of sales at Porto Cupecoy, began sending her sexually offensive emails with disparaging comments in 2011, and that in January 2012 at the Winter Concert Series at Porto Cupecoy, he grabbed and kissed her on the mouth. When she pulled away immediately, she claimed, he said, "I'm so sorry. I'm so sorry."

The day of the incident, plaintiff emailed two employees of yet another OEH Ltd. subsidiary—this one the defendant, Orient-Express Hotels Inc. (OEHI), an American company—about the incident. A week later, she met with OEHI's director of human resources, Carol Etheridge, and an attorney for OEHI. According to the plaintiff, Etheridge accused her of inventing her claims, and asked her why she wanted to work for the defendant when no one there liked her. No corrective action against Seay was taken; instead, the next day, the plaintiff was dismissed. Her termination letter was signed by an OEHI employee.

New York Case

Plaintiff filed her complaint in New York, and OEHI moved to dismiss, claiming that it was not her employer. OEHI also appears to have argued that even if it were her employer, it was not subject to Title VII because it has fewer than 15 employees, and the requirement that an employer have at least 15 employees is a substantive element of a plaintiff's Title VII claim.2

For her part, plaintiff alleged—and the court found—that, at least for the purposes of assessing the adequacy of her pleading in the context of a motion to dismiss, first, that OEHI was her joint employer, along with Cupecoy, which therefore provided for Title VII liability; and second, that OEHI controlled the manner and means by which Cupecoy employees' work was accomplished, and thus OEHI and Cupecoy constituted a "single employer."

As Judge Robert Sweet pointed out in his decision, there are two exceptions to the rule that employment discrimination may be maintained only against a plaintiff's direct employer: first, the "single employer doctrine" permits liability "when two nominally separate entities are part of a single integrated enterprise," and the "joint employer doctrine" permits liability when "separate legal entities have chosen to handle certain aspects of their employer-employee relationships jointly."3

While the U.S. Court of Appeals for the Second Circuit has "not yet fully analyzed or described a test for what constitutes joint employment in the context of Title VII," courts have looked to an "economic realities" test, or if there is evidence that the defendant had "immediate control over the former employer's employees."4

In this case, the court held that the plaintiff had satisfied her burden, at least for the purposes of the motion to dismiss, to show that OEHI may have jointly employed her along with Cupecoy. She submitted an affidavit naming several Cupecoy employees who allegedly reported to OEHI employees, and that she was required to have "daily contact with, and report to, several OEHI employees via email and phone," and "that Cupecoy's major employment decisions, including hiring and termination, and Cupecoy's marketing, advertising and sales were handled by OEHI employees."5

The plaintiff alleged that the defendant controlled Cupecoy through "the interrelation of operations, common management, and centralized control of labor relations, common ownership and financial control."

The court held that the plaintiff set forth sufficient facts to support her claim that OEHI controlled Cupecoy. The court focused, in particular, on her allegation that there was centralized control of labor relations between the two entities. The court so held despite OEHI's argument that OEHI never supervised Cupecoy's day-to-day operations, or made decisions on hiring, disciplining, or terminating Cupecoy's employees, or received Cupecoy's employment applications, or approved Cupecoy's personnel status reports, or had final authority for Cupecoy's "major" employment decisions, or "routinely" shifted employees between OEHI and Cupecoy.

The court in particular noted plaintiff's contention that an OEHI employee had signed plaintiff's termination letter, and that the OEHI director of human resources had investigated plaintiff's complaint of harassment, interviewed her, and personally fired her. "Those facts," the court held, "if true, would certainly demonstrate that OEHI and its employees were involved with the negative employment decision by which Plaintiff allegedly was injured."

The court noted, as well, that the facts could ultimately prove that OEHI did not control Cupecoy and that they were not a single employer, but on a motion to dismiss, the court allowed the case to go forward.

Impact of 'St. Jean'

Reading St. Jean v. Orient-Express Hotels, a U.S. employer may draw the conclusion that it is best to take a hands-off approach to overseas employment practices, on the theory that getting involved may result in it being dragged into court in the United States for alleged discrimination that occurred in a foreign country.

Regulating the behavior of U.S.-based employees is difficult enough without trying to administer personnel policies in different countries, with different cultures and expectations.

Here, it was the U.S. entity's evident involvement, albeit limited, in certain employment practices of its Netherlands sister company that caused Judge Sweet to conclude that it may be considered to be the plaintiff's employer.

Multinational employers may try to limit their exposure to overseas employment practices by walling off personnel decisions and trying to create deniability when a subsidiary makes a decision that goes awry.

Other standard practices to try to impose limitations on the authority of overseas based managers, and hence the liability of the parent, include putting in place policies and guidelines limiting the signing authority of seconded employees, or those on long-term assignment.

But limiting liability for allegedly unfair overseas employment practices may not always be as easy as drafting guidelines or policies. Particularly in today's world of instantaneous communications and ready access to the courts, parent companies, rather than acceding authority in the hope of limiting liability, are instead keeping a closer eye on their subsidiaries' employment practices.

While the result here may seem counterintuitive, the lesson is that U.S. companies may need to address incidents of allegedly wrongful or discriminatory conduct that occur overseas with the same care and concern that they give it when it occurs in the United States.

Philip Berkowitz is the U.S. practice cochair of Littler Mendelson's international employment law practice group; he is based in New York.

Endnotes:

1. 2013 U.S. Dist. LEXIS 112675 (S.D.N.Y. Aug. 7, 2013).

2. 42 U.S.C. §2000e(b); Arbaugh v. Y&H, 546 U.S. 500, 503 (2006).

3. St. Jean, 2013 U.S. Dist. LEXIS at *13 (citations omitted).

4. Id. at *13-14, (citations omitted).

5. Id. at 14.