Darrel Smith faced a dilemma. He wished to bring claims against his former employer, Equistar Chemicals, and Lyondell Chemicals Co., of which Equistar was an affiliate, because he claimed that he endured racist harassment at the company and was fired in 2006 for complaining about it. However, in 2009 Equistar and Lyondell filed for bankruptcy and thus were discharged from any liability to Smith. Smith dropped his claims against Equistar and Lyondell and instead focused his case on two former employees of the company. 

He first settled claims against his direct supervisor, James Bianchetta. Smith, who is black, alleged that Bianchetta, who is white, made offensive racist statements in his presence.

Smith also brought claims against Denise Bray, Equistar’s human resources manager, alleging that she ignored his complaints about the harassment and instead, in violation of Section 1981 of the Civil Rights Act, persuaded her bosses to terminate him in retaliation for lodging the complaints. Section 1981 applies to race-based discrimination and retaliation in contractual relationships, including employment. The U.S. District Court for the Northern District of Illinois rejected Smith’s claims against Bray, holding that he had failed to present sufficient evidence that she acted with retaliatory intent. On appeal, the 7th Circuit agreed. But the federal appeals court also made clear that it was only for lack of evidence that Smith’s case failed.

In a case of first impression, the 7th Circuit held on May 24 in Smith v. Bray that an employee with a retaliatory motive can be held individually liable under Section 1981 for causing his employer to retaliate against another employee.

“The court’s reasoning opens the door for a new basket of defendants and a new basket of potential claims for the plaintiffs bar to seize on,” says Linda Jackson, a partner at Venable.

Basic Fairness

In 2011, the Supreme Court endorsed the “cat’s paw” theory of employer liability in Staub v. Proctor Hospital. In Staub, the high court held that in cases in which employees faced adverse employment actions by a supervisor who is motivated by bias, the employer can be held liable for discrimination claims, even if the biased supervisor was not the final decisionmaker in the employment action.

The 7th Circuit in Smith v. Bray said that individual liability for a supervisor or manager who set in motion the retaliatory decision to terminate is a logical extension of the courts’ recognition of the cat’s paw theory in Section 1981 employment cases.

“It also makes sense as a matter of basic fairness,” the court wrote. Why should the employer face liability but not the subordinate with the retaliatory motive?

Shallow Pockets

“Undoubtedly plaintiffs are going to see this and it may, particularly in the short term, encourage people to sue individuals where previously they may not have even thought of that,” says Michael Warner, a partner at Franczek Radelet. “Lowerlevel managers have something to be worried about in that regard. … But in most cases, it’s the employer who’s going to be the ultimate target.”

Although the ruling opens the door to new claims, there’s some question as to what incentive plaintiffs would have to bring such cases against individual employees and supervisors who lack the deep pockets of employers. The specific set of circumstances in Smith’s case meant he was left with no other recourse.

“Most individual employees don’t have a lot of wealth, and generally, even if someone could be sued, they are not,” says Paul Mollica, a plaintiffs attorney at Outten & Golden. “It’s not sensible to sue people for the sheer heck of it—one hopes to recover damages and receive compensation for injury. But this case opens up that prospect.”

Claims could still arise from disgruntled former employees motivated less by money and more by anger or the desire for revenge against a supervisor who terminated them or was involved in their termination, and who the employees believe otherwise mistreated them. 

While it may seem like a distant possibility, if Smith v. Bray does lead to an increase of Section 1981 retaliation claims against individual employees, it would present some challenges to employees such as HR managers and low-level managers due to a lengthy four-year limitations period on bringing claims under Section 1981 for employment discrimination that results in the termination of an employee, Mollica says.

“Somebody who was an HR director and may have picked up and left the job could still conceivably find themselves [facing these claims] a year or two after they left,” he says.

An influx of claims against individuals also could force employers to make difficult decisions regarding indemnification and even lead to the possibility that employees involved in making employment decisions would start to request indemnification clauses in their contracts.

“If it becomes a wide practice for these lawsuits to include, as a matter of course, the HR person or the person who wrote the evaluation that set these wheels in motion, I might not be surprised if—after some time and if this becomes the next wave—indemnification is something that’s requested,” says Jackson. “Companies might have to deal with that.”