The Texas Supreme Court has given important guidance in the area of punitive damages in employment cases.  Punitive or exemplary damages are damages awarded in civil cases in order to punish bad behavior or make an example to others as to what can happen when the bad behavior is exposed.

The Texas Supreme Court in Safeshred, Inc. v. Martinez (Tex. 2012) examined punitive damages in relation to a cause of action in Texas commonly referred to as a “Sabine Pilot” action.  This name comes from the case, Sabine Pilot Service, Inc. v. Hauck, 687 S.W.2d 733 (Tex. 1985) in which the Supreme Court created a public policy cause of action that created an exception to the employment at will rule in Texas.  This cause of action made it illegal to terminate an employee for the sole reason that the employee refused to perform an act that was criminally illegal.  Up until the Safeshred case the Supreme Court had not ruled on whether punitive damages were available in such a case.

In Safeshred, the Court held that an employee could recover any reasonable tort damages, including punitive damages.  The Court held that punitive damages were an available remedy for an employee wrongfully discharged for refusal to commit an illegal act provided the employee could prove that the discharge involved malice.  The malice involved must be “actual malice” and something more than the intentional firing.  The firing must involve “substantial injury” and something “independent and qualitatively different from the compensable harms associated with the cause of action.”  To illustrate, the Court gave examples of  this type of malice:

•    where the employer circulates false or malicious rumors about the employee before or after the discharge or actively interferes with the employee’s ability to find other employment.
•    The Court referred to another case where a nursing home made the employee’s conduct look worse than it was before the state nursing board.
•    Another example is damage to the employee’s reputation or future employment prospects, which is a qualitatively different injury from the firing itself, and conscious indifference to a risk of    that injury.
•    Harassment in connection with a wrongful firing.
•    Malice might exist when an employer knows the retaliatory firing is unlawful and does it anyway (e.g., in Texas Commission on Human Rights cases where an employer retaliated against        employee with specific intent or gross negligence regarding the employee’s right to be free from such practices.  Also, if employee demonstrates that the employer engaged in a discriminatory practice with malice or reckless indifference to the state protected rights of the employee).

In the Safeshred case, the Court specifically held that, “…malice could be shown in the Sabine Pilot case by evidence that Safeshred, in firing Martinez, consciously ignored a risk of some additional serious harm, such as interference with his future employment, harassment, or terminating his employment knowing the reason for doing so is unlawful.”

The Court specifically refused to consider the dangerousness of the specific illegal acts that Safeshred ordered him to perform in assessing punitive damages.  The Court held that “…the employer’s illegal directive to the employee (and any malice that might have accompanied that directive) cannot form the basis for a punitive damages award.”

The Court stated that a plaintiff may not bring a Sabine Pilot claim immediately after being asked to perform an illegal activity, but must first refuse and be fired.  In reviewing other cases, the Court confirmed that in retaliatory termination cases, the only malice relevant to allowing punitive damages is that surrounding the actual termination itself.

In examining the evidence of malice in the case, the Court stated that the only evidence relevant to the inquiry was that Safeshred designated Martinez as ineligible for rehire in its employment records and the reason given on an internal report for Martinez’s firing was that he abandoned his job, with no mention of the dispute over the safety regulations.  The Court held that this evidence was insufficient to support a firm conviction that Safeshred was consciously indifferent to a risk of interfering with Martinez’s future employment prospects or causing some other serious harm stemming from the firing itself.  Additionally, the Court mentioned that there was not evidence of harassment in connection with the firing or that the firing of Martinez was unlawful.  The Court stated that the Court of Appeals relied primarily on evidence that the managers knew that driving the unsafe truck loads was illegal.  Importantly for future cases, the Court said that:

“…a malice finding based on Safeshred’s knowledge of illegality would require a showing that the company was aware that the law did not permit it to fire an employee for refusing to perform    an illegal act, but did so anyway.”(emphasis added)

Note:  This is the type of question that you must ask the manager that fired the employee, “when you fired my client, you knew, didn’t you, that it was illegal to fire my client for (whatever the alleged wrongful act was).”  Failure to ask this type question may doom your punitive damages and should always be a “starred and underlined” question in your list.

The Court further stated that in evaluating an employer’s actual malice in worker’s compensation retaliation cases, the Court has never looked to the employer’s conduct surrounding the workplace accident as proof of malice in the retaliation claim.  The same is true in whistleblower cases.  A whistleblower action involves both illegal conduct by the employer (which the employee reports) and a retaliatory employment action for blowing the whistle.  The Court only looks to the malice surrounding the employment action, but not in the underlying illegal act reported by the employee.

In examining the evidence, the Court found that the comments of Safeshred in the employment records of the employee did not constitute evidence of malice since there was no evidence that Safeshred subjectively knew or intended that the remarks in the employment records would interfere with the employee’s future employment or otherwise cause him harm.  Further, there was no evidence that Safeshred ever communicated the remarks in the record to other companies in the industry.

The Court reversed the punitive damages but not the actual damages.

The Equal Employment Opportunity Commission (EEOC) recently amended their regulations in order to clarify their interpretation of the U.S. Supreme Court case of Smith v. City of Jackson, Mar. 31, 2008. The Supreme Court ruled that disparate-impact claims are cognizable under the Age Discrimination in Employment Act (‘‘ADEA’’)  but that liability is precluded when the impact
is attributable to a reasonable factor other than age (RFOA). The EEOC proposed rules interpreting the application of the RFOA defense and, after receiving comments from the public, announced the following rule effective April 30, 2012.  While the EEOC interpretative rules are not binding on the courts, they are normally given “presumptive weight” by the courts in cases requiring interpretation of a law. The Final Rule provides considerations for EEOC investigators to use in determining whether an employment practice is based on a RFOA. Because the EEOC has rulemaking authority under the ADEA, courts are likely to defer to the Final Rule when evaluating the RFOA defense.   The new rule on RFOA reads as follows:

In § 1625.7, revise paragraphs (b) through (e) to read as follows: § 1625.7 Differentiations based on reasonable factors other than age (RFOA).

(b) When an employment practice uses age as a limiting criterion, the defense that the practice is justified by a reasonable factor other than age is unavailable.

(c) Any employment practice that adversely affects individuals within the protected age group on the basis of older age is discriminatory unless the practice is justified by a ‘‘reasonable factor other than age.’’ An individual challenging the allegedly unlawful practice is responsible for isolating and identifying the specific employment practice that allegedly causes any observed statistical disparities.

(d) Whenever the ‘‘reasonable factors other than age’’ defense is raised, the employer bears the burdens of production and persuasion to demonstrate the defense. The ‘‘reasonable factors other than age’’ provision is not available as a defense to a claim of disparate treatment.

(e)(1) A reasonable factor other than age is a non-age factor that is objectively reasonable when viewed from the position of a prudent employer mindful of its responsibilities under the ADEA under like circumstances. Whether a differentiation is based on reasonable factors other than age must be decided on the basis of all the particular facts and circumstances surrounding each individual situation. To establish the RFOA defense, an employer must show that the employment practice was both reasonably designed to further or achieve a legitimate business purpose and administered in a way that reasonably achieves that purpose in light of the particular facts and circumstances that were known, or should have been known, to the employer.

(2) Considerations that are relevant to whether a practice is based on a reasonable factor other than age include, but are not limited to:

(i) The extent to which the factor is related to the employer’s stated business purpose;

(ii) The extent to which the employer defined the factor accurately and applied the factor fairly and accurately, including the extent to which managers and supervisors were given guidance or training about how to apply the factor and avoid discrimination;

(iii) The extent to which the employer limited supervisors’ discretion to assess employees subjectively, particularly where the criteria that the supervisors were asked to evaluate are known to be subject to negative age-based stereotypes;

(iv) The extent to which the employer assessed the adverse impact of its employment practice on older workers; and

(v) The degree of the harm to individuals within the protected age group, in terms of both the extent of injury and the numbers of persons adversely affected, and the extent to which the employer took steps to reduce the harm, in light of the burden of undertaking such steps.

(3) No specific consideration or combination of considerations need be present for a differentiation to be based on reasonable factors other than age. Nor does the presence of one of these considerations automatically establish the defense.

On March 9, 2012, The Texas Supreme Court ruled in In Re Frank Kent Motor Co., (Tex. 2012) that a jury waiver signed by an at-will employee was valid.  This case arose when a a 28 year employee of Frank Kent Motor Co. was asked to sign a jury waiver in 2008.  The employee at first refused but then, under threat of termination, signed the agreement to waive a jury trial.  About one year later the employee was fired and he filed an age discrimination suit.  The employer filed a motion to strike the jury demand arguing that the jury waiver required it.  The district court and court of appeals refused to enforce the waiver.  The employee argued that the waiver was unconscionable because it was not voluntarily secured since it was executed under threat of the termination of a 28 year employment relationship.  The Supreme Court granted the writ of mandamus ordering the trial court to enforce the jury waiver.  The Court reasoned that because an employer has the legal right to terminate an at-will employee, a threat to exercise that right cannot amount to coercion that would invalidate a jury waiver agreement.  This case is certainly sad news for the right to a jury trial and may encourage other employers to exert their overwhelming bargaining power to deny employees their Constitutional right to a jury trial.  To say that the jury waiver was not secured by coercion is to turn a blind eye to the reality of the employer/employee relationship.  To call a threat to terminate a 28 year employee because he refuses to give up a Constitutional right acceptable behavior for an employer is just flat unjust.  Obviously, the trial court and the Court of Appeals believed it was unjust.  This holding is worrisome for employees in that it is a slippery slope of what is next related to the freedom of an employer in an at-will employment relationship.  Could this Supreme Court rule that there are no damages suffered for loss of future pay when an at-will employee is illegally fired for filing a worker’s compensation claim or because the employee refuses to submit to sexual harassment since the employer could have fired them “at-will” anyway?  Let’s hope not.

Should a non-union medium to large company have a program that grants  some limited job protection to its employees that have say, ten or more years at the company, and have met a certain minimum level of good performance during this time?  This seems like it would be a benefit to the company and its employees.  The benefit to the company would be that it encourages long term employees and encourages the employees to be good employees.  Tenure (job protection) would only be granted by the employer after the ten years and would be discretionary with the employer unless the failure to grant it was discriminatory or in bad faith.  After the granting of “tenure”, then the employee could not be fired except for business necessity or good cause.  Good cause would have a definition and have the right to a hearing and a simple procedure to be followed for a “cause termination” and a chance to have an arbitration if there was a disagreement.  This type program would recognize the fact that long term employees have made a commitment of their time and life to a company and should not be subject to the whims of management for something as important as their job.  Although, it would be nice if this type tenure had some legal protection, even if there was no law, it would certainly be a great voluntary program for companies who want to get and keep  long term employees.

Norton v. Assisted Living Concepts, Inc., 786 F. Supp.2d 1173 (E.D. Tex 2011)

Disability Under the ADAAA-  Applying the Americans with Disabilities Act Amendment Act (ADAAA) amended definition of disability under the actual disability prong to the facts in this case, the court concluded that the employee Norton’s renal cancer is capable of qualifying as a disability under the ADA. Neither side disputed that renal cancer, when active, constitutes a “physical impairment” under the statute. Further, the court found that renal cancer, when active, 29 C.F.R. § 1630.2(h)(1) “substantially limits” the “major life activity” of “normal cell growth.” See 42 U.S.C. §12102(4)(A) & (B); 42 U.S.C. § 12102(2)(B). Therefore, the fact that Norton may have been in remission when he returned to work at the defendant is of no consequence. See 42 U.S.C. §12102(4)(D). Norton’s renal cancer qualifies as a disability even if the only “major life activity” it “substantially limited” was “normal cell growth.” See 42 U.S.C. §12102(4)(C). The court’s conclusion that Norton’s renal cancer is capable of qualifying as a disability under the ADA is bolstered by the EEOC’s interpretation and implementation of the ADAAA. The EEOC’s final regulations implementing the amendments provide a list of impairments that, because they substantially limit a major life activity, will “in virtually all cases, result in a determination of coverage under [the actual disability prong].” 29 C.F.R. § 1630.2(j)(3)(ii). One of the impairments listed is “cancer” because it “substantially limits [the major life activity] of normal cell growth.” Id. at § 1630.2(j)(3)(iii). See also the EEOC’s interpretive guidance accompanying its final regulations, 76 FR 16978-01, 2011 WL 1060575, at 17007, 17011, & 17012 (citing examples in the legislative history of the ADAAA where Congress named cancer as the kind of impairment that would qualify as a disability under the amended Act). See also Feldman v. Law Enforcement Assocs. Corp., No. 5:10-cv-08-BR, 2011 WL 891446 (E.D.N.C. March 10, 2011) (holding that employee who suffered from episodic flare ups of multiple sclerosis (MS) had plausible claim of disability under the ADA as amended because when active, the MS substantially limited the employee’s normal neurological functions, which is a major life activity under the amended Act); Chalfont v. U.S. Electrodes, No. 10-2929, 2010 WL 5341846 (E.D. Pa. Dec. 28, 2010) (holding that employee with leukemia, heart disease and remissive cancer had plausible claim of disability under the ADA as amended because his maladies substantially limited his normal cell growth and circulatory functions, both of which are major life activities under the amended Act); Horgan v. Simmons, 704 F.Supp. 2d 814 (N.D. Ill. 2010) (holding that employee with HIV positive status had plausible claim of disability under the ADA as amended because the normal functioning of his immune system, a major life activity under the amended Act, was substantially limited).  In an unusual move, the court, pursuant to Rule 56(f), gave the defendant notice of the court’s intention to grant summary judgment for Norton under Rule 56(f)(1) on the issue of his cancer constituting a disability under the ADA and gave the defendant twenty days to respond.

Blanchard v. Brazos Forest Products, 353 S.W.3d 569 (Tex.App.– Fort Worth 2011, pet.filed)

Unemployment Compensation Appeal Procedures- Unemployment compensation claimant sought review of a decision of the state Workforce Commission denying his claim.  The district court granted summary judgment to the employer.  The Court of Appeals held that substantial evidence supported finding that claimant’s actions in the performance of his job constituted misconduct disqualifying him from receiving unemployment compensation.  Judicial review of a TWC determination is by trial de novo based on the substantial evidence rule. Tex.Lab.Code § 212.202(a).  The trial court conducts an evidentiary trial to determine wether the agency’s ruling is free of taint of any illegality and is reasonably supported by substantial evidence.  In making this determination , the issue is not whether TWC made the correct decision; it is instead whether the evidence introduced before the trial court show facts in existence at the time of the TWC decision that reasonably support the decision; that is , whether reasonable minds could have reached the same conclusion.   The true test is not whether the agency reached the correct conclusion, but whether some reasonable basis exists in the record for the action taken by the agency.   Because substantial evidence is more than a mere scintilla of evidence but less than a preponderance of evidence, the evidence may preponderate against the TWC decision but still amount to substantial evidence.  TWC  remains the primary factfinding body, and the reviewing court may not substitute its judgment for TWC’s on controverted fact issues; the question before the trial court is one of law.  Since this was a summary judgment case, the trial court was required to accept as true all of Blanchard’s evidence, indulge every reasonable inference and resolve any doubts in his favor, and determine whether the summary judgment evidence showed, as a matter of law, that facts in existence at the time of TWC’s decision reasonably supported the decision; i.e., whether reasonable minds could have reached the same conclusion.  Blanchard’s contention was that the trial court must have applied the wrong evidentiary standard because he presented evidence creating genuine issues of material fact in response to defendant’s summary judgment evidence.  But the question to be decided by the trial court on summary judgment was whether defendant proved as a mater of law that Blanchard engaged in misconduct as defined by the labor code or whether fact issues precluded summary judgment.  The trial court was required to determine whether defendant proved as a matter of law that substantial evidence supported TWC’s decision to deny benefits.  In a concurring opinion, the judge called the entire review process involving the TWC to be a “sham” because if there is any evidence amounting to more than a scintilla before the TWC that supports its decision then, as a matter of law, the TWC cannot be reversed.  The judge stated that the employee showed substantial conflicting evidence but the applicable standard required it to be ignored.  The judge called upon the Supreme Court to come up with a new standard of review to be applied to summary judgment cases involving appeals from administrative decisions based on substantial evidence.

Smith v. City of Lubbock, 351 S.W.3d 584 (Tex.App.– Amarillo 2011, pet.filed)

Worker’s Compensation-Underinsured Motorist Policy- Employee who was struck by a drunk driver while working in the course and scope of his employment brought action against his employer and the insurance carrier to collect damages under employer’s underinsured motorist policy, even though he had already received worker’s compensation benefits.  The district court entered summary judgment in favor of employer city and insurer. The insurance company conceded on appeal that the judgment for it should be reversed and remanded to trial court.  The court of appeals held that worker’s compensation laws barred additional recovery against the employer city. The city had purchased an underinsured policy for its employees, even though the city had worker’s compensation that covered them for injuries in the scope of employment.  The employee argued that the worker’s compensation only precluded work related injuries arising from common law torts as opposed to a contract.  The court of appeals rejected this contention holding that the worker’s compensation statute prohibits further recovery against the employer.

Acosta v. Government Employees Credit Union, 351 S.W.3d 637 (Tex.App. – El Paso 2011, nwh)

Civil Rights – Age & National Origin Discrimination – Employee filed suit under the Texas Commission on Human Rights Act (TCHRA) based on a national origin and age claim.  The district court granted a motion for summary judgment which was affirmed by the Court of Appeals ruling that the employee’s evidence failed to negate employer’s claim that she was fired for violating member confidentiality policy.  The Court examined the claim under the McDonnell Douglas burden shifting analysis.  The Court held that the employee established a prima facie case, which is not an onerous burden.  However, the Court held that the employee’s claim was so weak as to fail regarding the national origin discrimination claim.  As to the age claim, the Court stated that the employee must prove that she was within the protected class, was discharged, was qualified for the position, and was either replaced by someone outside the protected class, replaced by someone younger, or was otherwise discharged because of her age.  The Court held that a showing that the fact that the replacement was only four years younger was not significant enough to prove age discrimination.  The Court stated that he overwhelming body of cases in most circuits have held that age differences of less than ten years are not significant enough to make out the fourth part of the age discrimination case.

Hernandez v. Grey Wolf Drilling LP, 350 S.W.3d 281 (Tex.App.– San Antonio 2011, nwh)

Civil Rights- Age Discrimination & Retaliation – Former employee brought action against employer alleging age discrimination and retaliation in violation of the TCHRA.  The district court entered summary judgment in employer’s favor.  The Court of Appeals held that the summary judgment was improper on the employee’s claims and reversed the case.  The Court classified the case as a “pretext” case (neither party argued that it was a “mixed-motive” case).  The employer argued that the employee should have to prove that age was the “but for” reason for the discharge; however, the Court held that because the TCHRA contains a “motivating factor” language that the test was not “but for” but “a motivating factor”.  The Court held that the employee’s affidavit provided more than a scintilla of evidence on all four elements of his prima facie claim.  Regarding the retaliation claim, the employee’s affidavit stated that he had complained to his supervisor about being called an “old man” and “old fart”.  The Court held that this was sufficient to raise a question as to the employee engaging in a protected activity and being terminated for it.

Schroeder v. Greater New Orleans Federal Credit Union, 644 F.3d 1016 (5th Cir. 2011)

Federal Credit Union Act Whistleblower Provision- The Federal Credit Union Act (FCUA), 12 U.S.C. § 790(b), makes it illegal for an insured credit union to retaliate against an employee who provides information to the National Credit Union Administration (NCUA) or U.S. Attorney General regarding a possible violation of any law by the credit union.  The Fifth Circuit reversed the district court’s summary judgment for the credit union finding that the plaintiff’s evidence was sufficient to create an issue of fact whether several adverse employment actions against plaintiff were caused by the report by plaintiff to the NCUA regarding the credit unions’s possible law violations.

If the Family Medical Leave Act (FMLA) entitles an employee to leave, an employer may not, in lieu of FMLA leave, require an employee to take a job with a reasonable accommodation.  However, the Americans with Disabilities Act (ADA) may require that an employer offer an employee the opportunity to take such a position.  An employer may not change the essential functions of the job in order to deny FMLA leave.  Many times employers engage in coercion to get an injured employee to return to work after an on the job injury covered by worker’s compensation.  These employers will make what is called a bona fide offer of employment to the injured employee which will have a job description tailored to the employees medical restrictions, even to the point of sitting in a chair and counting ceiling tiles.   This is usually done to keep the employer from having a lost time accident.   It is not illegal for the employer and employee to voluntarily agree to this arrangement.  However, the employee cannot be forced to forgo his right to take FMLA leave rather than enter into the “light duty” situation while recovering from the accident.  Of course, the employer does not have to pay the employee while he utilizes FMLA leave and the worker’s compensation insurance carrier can lawfully refuse to pay benefits when an employee refuses the light duty or the job tailored to his medical restrictions. (see FMLA reg. sec. 825.220 (a)(3)(d))

Even without an express agreement, an employee owes certain duties to his employer during the employment. For example, an employee who is still employed may not compete against his employer.  Moreover, if the employee plans to leave in the future, he must not let his efforts to prepare for some future business interfere with his current employment. On the other hand, the public policy in favor of competition and mobility of labor favors permitting an employee to make at least some preparations for new employment or business before he terminates his current employment. See, e.g., Ameristar Jet Charter, Inc. v. Cobbs, 184 S.W.3d 369 (Tex. App.-Dallas 2006) (employee did not breach duty of loyalty by forming a new corporation during his employment, even though he used the new corporation to compete against the employer after he left his employment).

In an unpublished case, Central Texas Orthopedic Products, Inc. v. Espinoza, 2009 WL 4670446 (Tex. App.–San Antonio 2009), the court recognized an important employer remedy—the
“unfaithful servant doctrine”—which can result in the forfeiture of an employee’s right to compensation. See Restatement (Third) of Agency § 8.01. The unfaithful servant doctrine is based on the duty of loyalty.  Among other things, the duty of loyalty bars an employee’s competitive solicitation of customers prior to the termination of employment. The employee in this case did engage in competitive solicitation, but when the employer sued the employee, the employee filed a counterclaim for unpaid compensation.  Invoking the unfaithful servant doctrine, the court of appeals held that there was an issue of fact whether the employee had forfeited his right to commissions that he earned during the period he was also violating his duty of loyalty.  Thus, the trial court erred in granting summary judgment for the employee on his claim for compensation under contract law and under the Texas Payday Act.

In the recent Texas Supreme Court case of Port Elevator v. Casados, Docket No. 10-0523 (Tex. 2012), the Court discussed the law surrounding worker’s compensation coverage of  an employee who may be working for two companies at once and  “split work forces”.  Unlike workers’ compensation laws in every other state, the Texas Worker’s Compensation Act (TWCA) allows private Texas employers to choose whether to subscribe to workers’ compensation insurance. TEX. LAB. CODE § 406.002(a); Lawrence v. CBD Servs., Inc., 44 S.W.3d 544, 552 (Tex. 2001). Employees of subscribing employers also have a choice: they may opt out of the system within the prescribed time and retain their common-law rights. TEX. LAB. CODE § 406.034.  Although the TWCA is unique among the states in allowing private employers to choose whether to subscribe, it encourages employers to subscribe by abolishing their common-law defenses of contributory negligence, assumption of the risk, and fellow servant if they do not subscribe. TEX LAB. CODE § 406.033.  The Legislature intended the TWCA to benefit both employees and employers.

For employees, the TWCA allows them to recover workers’ compensation benefits for injuries in the course and scope of employment without proving fault by the employer and without regard to their negligence or that of their coworkers. TEX. LAB. CODE § 406.031; HCBeck, Ltd. v. Rice, 284 S.W.3d 349, 350 (Tex. 2009); Tex. Workers’ Comp. Comm’n v. Garcia, 893 S.W.2d 504, 511 (Tex.1995). The Texas Courts construe the TWCA liberally in favor of coverage as a means of affording employees the protections the Legislature created. Navarette v. Temple Indep. Sch. Dist., 706 S.W.2d 308, 309–10 (Tex. 1986). For employers, their liability to employees is limited. Garcia, 893 S.W.2d at 510–11.  The TWCA states that “[r]ecovery of workers’ compensation benefits is the exclusive remedy of an employee covered by workers’ compensation insurance coverage or a legal beneficiary against the employer . . . for the death of or a work-related injury sustained by the employee.” TEX. LAB. CODE § 408.001(a). The only exception to the exclusive remedy provision is when an employee’s death “was caused by an intentional act or omission of the employer or by the employer’s gross negligence.” TEX. LAB. CODE § 408.001(b).  Although the TWCA specifies an employer may subscribe to workers’ compensation insurance by generally obtaining or declining coverage, importantly, the employer may not split its workforce by electing coverage for some employees but not coverage for all. Tex. Workers’ Comp. Ins. Fund v. DEL Indus., Inc., 35 S.W.3d 591, 596 (Tex. 2000). Other provisions of the TWCA confirm that an employer’s election is generally for its workforce as a whole.

Statutes and the common law provide certain limited exceptions that allow an employer to split its workforce. First, an employer may operate more than one distinct kind of business and elect workers’ compensation insurance for only one of its businesses. Sullivan, 334 S.W.2d at 786 (“an employee falls outside the coverage secured by an employer if the employer conducts two separate and distinct kinds of business, each of which involves different risks, payrolls and premium rates”).

Second, an employer may elect to exclude a sole proprietor, partner or corporate executive officer. TEX.LAB.CODE § 406.097.

Third, an employer may lease staff from another company under the Staff Leasing Services Act (SLSA). Id. § 91.042. However, the SLSA does not apply to work that is “temporary or seasonal
in nature.” Id. § 91.001(14). Absent one of these statutory or common-law exceptions, an employer may not split its workforce for purposes of worker’s compensation. An employee may have more than one employer within the meaning of the TWCA, and each employer who subscribes to workers’ compensation insurance may raise the exclusive-remedy provision as a bar to claims about the injury. See Garza v. Exel Logistics, Inc., 161 S.W.3d 473, 475–76 (Tex. 2005) (stating that client company could assert exclusive-remedy defense to claims  by temporary employee if it was covered by workers’ compensation insurance); Wingfoot Enters. v. Alvarado, 111 S.W.3d 134, 143 (Tex. 2003) (holding that exclusive-remedy provision applied to both temporary staffing company and client company). In Wingfoot, the Court held that an employee of a temporary staffing agency sent to a client company that directs the details of his work is an employee of both companies. 111 S.W.3d at 143. The Court explained that “an employee should not be placed in the position of trying to determine, perhaps at his or her peril, which of two entities was his or her employer on any given day or at any given moment during a day.” Id.  The employee should be able to pursue workers’ compensation benefits from either the temporary staffing company’s carrier or the client company’s carrier (see also TEX. LAB. CODE § 410.033 prescribing procedure for two or more carriers liable for compensation).

In Garza v. Exel Logistics, Inc., 161 S.W.3d 473 (Tex. 2005), the Supreme Court held that a client company can avail itself of the exclusive remedy provision against claims by a temporary employee if either: (1) the client company was a named insured on the staffing company’s policy; (2) the staffing company obtained a separate workers’ compensation policy for the client company; or (3) the client company obtained its own workers’ compensation policy. 161 S.W.3d at 480.  The Supreme Court remanded because there was no evidence the client company had any such coverage. The Supreme Court has also stated that the exclusive-remedy provision bars claims by a temporary worker against a client company if the client company establishes: (1) that it was the plaintiff’s employer within the meaning of the TWCA, and (2) it subscribed to workers’ compensation insurance. 206 S.W.3d at 123.  The Supreme Court held that the exclusive-remedy provision barred that suit because the client company was the plaintiff’s employer and was a workers’ compensation subscriber. Id. at 124.

There is no Federal law that clearly prohibits an employer from asking about arrest and conviction records. However, using such records as an absolute measure to prevent an individual from being hired could limit the employment opportunities of some protected groups and thus cannot be used in this way.  The EEOC states that nationally, Blacks and Hispanics are convicted in numbers which are disproportionate to Whites and that barring people from employment based on their conviction records will therefore disproportionately exclude those groups. Due to this adverse impact, an employer may not base an employment decision on the conviction record of an applicant or an employee absent business necessity. Business necessity can be established where the employee or applicant is engaged in conduct which is particularly egregious or related to the position in question.

Since an arrest alone does not necessarily mean that an applicant has committed a crime the employer should not assume that the applicant committed the offense. Instead, the employer should allow him or her the opportunity to explain the circumstances of the arrest(s) and should make a reasonable effort to determine whether the explanation is reliable.

Even if the employer believes that the applicant did engage in the conduct for which he or she was arrested that information should prevent him or her from employment only to the extent that it is evident that the applicant cannot be trusted to perform the duties of the position when

• considering the nature of the job,
• the nature and seriousness of the offense,
• and the length of time since it occurred.

This is also true for a conviction.

If an employer chooses to collect arrest or conviction information, it must do so consistently. Obtaining criminal records in an inconsistent manner, based on the race, color, religion, national origin, or sex of the applicant, is unlawful under Title VII. For example, it would be unlawful for an employer to only require background investigations of applicants who were born in the Middle East or are Muslims.

While Texas does not have any laws directly preventing the inquiry about or use of arrests or convictions by private employers in employment decisions (there are some restrictions on governmental use of these histories), several other states do have laws restricting and regulating employers use of this information.  Of course, the Texas discrimination laws could possibly prevent Texas private employers from utilizing criminal histories to discriminate based on a recognized protected category as discussed above.

If you believe that you have been prevented from being hired because of the use of arrest records or convictions and you are a member of a minority, you may want to consider contacting an attorney or the EEOC regarding this issue.