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special to the national law journal Carla J. Feldman ( [email protected]) is a partner in the litigation department in the Los Angeles office of Loeb & Loeb. She concentrates her practice on advising and defending employers in labor and employment matters. Directors, officers, managers and supervisors are increasingly being named as individual defendants in lawsuits ranging from fraud and breach of fiduciary duty to sexual harassment, wrongful termination, retaliation and violation of environmental laws. This increase is the result of several trends-political, economic and legal-but executives and supervisors can take steps to limit exposure to personal liability. Since Sept. 11, 2001, few employers have been spared from the necessity of reducing staff or costs to meet the challenging economic climate. As a result, many directors, officers, managers and supervisors are tasked with additional workplace responsibilities, which sometimes lead to liability for acting outside the scope of employment. Most employers are legally required to indemnify and defend their employees from claims or lawsuits arising out of the lawful discharge of their duties while acting within the course and scope of employment. When a claim or suit is brought against a manager or supervisor arising from workplace conduct, more often than not the employer will defend the claim or suit and provide the individually named management employee with indemnity for any judgment or settlement in the action. Many employers also provide company managers and supervisors with additional protection in the form of purchased insurance covering directors and officers, or employment-practices liability. However, when an individual is personally named in a lawsuit, the cost of defending against the suit can easily exceed $150,000. When liability is established, verdicts average in excess of $200,000. While most actions of a manager or supervisor acting within the course and scope of employment are covered by the employer’s indemnity obligations and/or insurance, individuals who assume additional responsibilities or duties in the work environment should be mindful of the potential for increased personal liability that may result from these added responsibilities. When an individual supervisor or manager is tasked with new responsibilities that are not properly supervised, or for which the employee is not qualified, liability can arise if improper practices are allowed, or if concerns are met with inaction or inadequate response. Personal liability can also arise when a management employee is alleged to have engaged in conduct that is outside the course and scope of his or her duty or authority, or when the conduct alleged cannot be covered by indemnity or insurance due to public policy. Changes in the courts For many years, actions have been permitted against individual company management employees for claims of sexual harassment, as well as for management policy and conduct related to the commission of safety and environmental violations. For example, in 1999, a New York jury imposed personal liability on the officers and shareholders of a company that owned gas stations that polluted city water supplies. The total award of more than $11 million included a $1 million penalty against the individual who had control of the corporation. Claims alleging personal liability of company management for antitrust, insider trading, defamation and breach of fiduciary duty are also common. Under many state anti-discrimination laws, individual managers and supervisors can be held personally liable. The rules are different for federal anti-discrimination laws such as the Americans With Disabilities Act, the Family Medical Leave Act and Title VII of the Civil Rights Act of 1964. Most federal circuit courts agree that supervisors cannot be held individually liable under federal anti-discrimination laws; however, state courts are divided on the issue. States like California and Colorado allow claims against individuals for harassment and retaliation only, while Iowa, Maine, Massachusetts, New York, Ohio and Tennessee allow suits against individual supervisors for both harassment and other types of discrimination. Expanding liability The circumstances under which an individual manager or supervisor can be liable for employment torts has been expanding in recent years under some states’ laws, and the frequency of claims has increased in the wake of recent layoffs and the rise in the nation’s unemployment. And large verdicts against company personnel send a strong message to management. A jury in Connecticut awarded a fired employee $300,000 and held the president of the company personally liable for negligent misrepresentation. The plaintiff claimed that he was lured away from his previous job by the defendant, who made various promises to him about job security, and then fired him two weeks later. A jury in Oregon awarded a fired deputy $850,000 for retaliation and held the sheriff and seven deputies personally liable. The former deputy claimed that he had been terminated after he had refused to engage in racial profiling and had brought up the issue with his supervisors. Scandals fuel the fire Recent corporate scandals have also produced a flurry of lawsuits by shareholders, pension fund managers and creditors against directors, officers and executives. Officers and directors of companies such as Enron Corp., Global Crossing and WorldCom have been named in suits for breach of fiduciary obligation; misrepresentation; and stock, securities and pension fraud. Departed executives such as Enron’s Ken Lay and WorldCom’s Bernard Ebbers have found themselves defendants in novel suits demanding a return of monies received in the form of lucrative retirement packages, stock grants and “golden parachute” agreements. Individual officers and directors are being named almost daily in actions by pension and retirement funds depleted by the accounting scandals of companies now in bankruptcy or liquidation. At the same time, new corporate governance laws, such as the Sarbanes-Oxley Act, impose new responsibilities on executives along with increased exposure to personal liability. Faced with greater legal accountability, scrutiny, exposure and responsibility, today’s corporate manager must carefully navigate the waters of potential personal liability that can arise from workplace conduct. Both company and individual practices and policies must be re-examined so that the career-ending lawsuit never lands on the desk of the well-intentioned company manager. In order to ensure that claims, charges and suits are avoided, a few simple and practical rules should be observed: Stay well-informed in all areas of company operations falling within a manager’s or supervisor’s authority or control. Provide a system for monitoring and auditing company financial expenditures. Regularly train and advise company management in areas of concern and/or potential exposure. Avoid conflicts of interest or the sharing of confidential company information and employee personal information. Seek advice and counsel of other company managers or legal counsel when issues of concern are discovered or presented. Stay informed of changes in the law that affect the workplace, and adjust practices accordingly. Encourage the proper delegation of issues to individuals within the organization who are trained to respond. Promote communication and information-sharing through attendance at meetings and documentation of important events in writing. Raise issues of concern immediately upon discovery, so that they may be addressed without delay.

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