Stengart Strikes Again: Liability Under New Jersey's Law Against Discrimination May Extend To High-Level Executives, Officers And Parent Companies

Monday, January 3, 2011 - 01:00

After the New Jersey Supreme Court issued an important ruling on workplace privacy in Stengart v. Loving Care Agency, Inc. in March 2010,1 it is no surprise that this high-profile litigation has generated another important decision for employers. On November 4, 2010, Judge Estela De La Cruz of the New Jersey Superior Court, Law Division, Bergen County denied a motion for summary judgment by several high-level executives of the Loving Care Agency and its holding company, finding a triable issue of fact as to their liability for aiding and abetting a hostile work environment at the company. Stengart v. Loving Care Agency, Inc. (Docket No. BER-L-858-08). As discussed below, the court's decision contains important lessons for all executives and human resource personnel.

Factual And Procedural Background

In Stengart , plaintiff Marina Stengart was employed by Loving Care Agency, Inc., a home health care company. In January 2008, Stengart resigned from her employment because of allegedly discriminatory comments based upon her religion (Jewish), ethnicity (Russian), as well as sexually explicit comments and advances. Several weeks later, she sued the company and its CFO, CEO, interim prior CEO and VP of Human Resources, asserting claims under the New Jersey Law Against Discrimination ("NJLAD"). Stengart also sued the holding company that previously had acquired Loving Care Agency in 2006.

The majority of Stengart's allegations were focused upon the alleged conduct of the company's CFO, whom she claims sexually harassed her and other female employees. Stengart also claims that the company's other executives aided and abetted the hostile work environment, and therefore should be individually liable under the NJLAD as well.

In addition to the CFO's sexually harassing conduct, Stengart also alleged that the company's CEO made anti-Russian and anti-Semitic comments in the workplace, and that the prior interim CEO had openly stated that he did not want employees to speak Russian in the office. In her complaint, Stengart alleged that both men took steps to cover up an internal investigation into Stengart's complaints about hostile work environment. Among other things, she alleged that the CEO directed the VP of HR, his subordinate, to conduct the investigation, despite the allegations of his own involvement and the consequent need for an outside investigator. The CEO then failed to accept the HR VP's recommendation that the CFO be terminated for his misconduct. The CFO even was permitted to attend the company's board meeting at which Stengart's complaints were addressed, resulting in an alteration of the board's meeting minutes. In her complaint, Stengart further alleged that the HR VP was aware of the hostile work environment but failed to take any preventive or corrective action. Finally, Stengart alleged that the company aided and abetted the hostile work environment through its board of directors, which included the current and prior CEOs.

Shortly before trial, the defendants moved for summary judgment to dismiss these aiding and abetting claims and other claims.

The Court's Analysis

On November 4, 2010, Judge De La Cruz denied the defendants' summary judgment motion on the aiding and abetting claims, thereby keeping these high-level executives and officers and the holding company in the case. The court applied the New Jersey Supreme Court's standard for aiding and abetting liability based upon Tarr v. Ciasulli , 181 N.J. 70, 84 (2004): "[T]o hold an employee liable as an aider or abettor, a plaintiff must show that (1) the party whom the defendant aids must perform a wrongful act that causes an injury; (2) the defendant must be generally aware of his role as part of an overall or tortious activity at the time that he provides the assistance; [and] (3) the defendant must knowingly and substantially assist the principal violation."

With respect to the current and prior CEOs, the trial court reasoned that given Stengart's allegations of such a severe and pervasive hostile work environment at the company, a reasonable jury could find that those executives knew about the hostile work environment and contributed to it by making derogatory comments. According to the court, the fact that they were high-ranking executives at the time they made such statements, and therefore responsible for maintaining a positive, healthy work environment, made their alleged misconduct even more egregious. The court also determined that the executives' actions to cover up an internal investigation into Stengart's complaints, while not contributing directly to the hostile work environment itself, lent support to the rational conclusion that they were trying to hide their own past misconduct.

For the same reasons that the current and prior CEOs could be found liable for aiding and abetting the hostile work environment, the court also held that the defendant LCA, the holding company, could be found liable. This is because a holding company can act only through its board of directors, which included the two executives. Thus, the actions of these individuals in their capacity as board members implicated the holding company.

In seeking her dismissal from the case, the HR VP claimed that Stengart never had reported to her any complaints about anti-Russian or anti-Semitic commentary, and had not reported the CFO's alleged sexual harassment until after Stengart had decided to resign, over one year after the alleged misconduct. Nevertheless, the court held that a reasonable jury could find the HR VP individually liable for aiding and abetting liability because she either was or should have been aware of the hostile work environment, given Stengart's allegations that discriminatory and harassing conduct at the company was rampant and overt. The trial court determined that deliberate indifference to conditions constituting a hostile work environment is sufficient basis for aiding and abetting liability.

Lessons To Be Learned

The court's decision demonstrates that potential liability for hostile work environment and sexual harassment claims does not stop at the employee directly responsible for the misconduct, nor an immediate supervisor, nor the entity itself. The chain of liability can extend to high-level executives, directors, officers, and parent companies. Such persons and entities need not even actively participate in the alleged misconduct - if they turn a blind eye or fail to take adequate steps to remedy the situation, they may be found individually liable for aiding and abetting the hostile work environment.

Moreover, the involvement of high-level executives and officers as defendants in hostile work environment litigation costs time, money and also causes great anxiety for these key employees. In many cases, it also may be necessary to retain separate counsel to the extent their interests may conflict with those of the employer.

In light of the recent decision in Stengart, all employers should consider taking the following precautions:

• If one is not already in place, work with counsel to develop an anti-discrimination and anti-harassment policy that expressly prohibits inappropriate conduct, the consequences of such misconduct, reporting procedures, and anti-retaliation provisions.

• In addition to employees, supervisors, and managers, make sure that all high-level executives, including directors and officers, receive a copy of the appropriate workplace policies and are trained as to what constitutes inappropriate workplace conduct, as well as their responsibilities for correcting the inappropriate conduct.

• Establish clear guidelines for conducting internal investigations into complaints of inappropriate conduct. Such guidelines should strive to promote neutral and thorough review of complaints. The guidelines should contain mechanisms for replacement of an investigator should a conflict of interest arise.

• Uniformly enforce anti-discrimination and anti-sexual harassment policies and procedures and take prompt remedial action once inappropriate workplace conduct is brought to your attention.

• Periodically review the effectiveness of mechanisms for reporting inappropriate workplace conduct, and ensure that such mechanisms are properly functioning.

1In Stengart v. Loving Care Agency, Inc., 201 N.J. 300 (2010), the New Jersey Supreme Court held that plaintiff Marina Stengart had a reasonable expectation of privacy in communications she had with her attorney through her personal web-based e-mail, despite accessing the communications on her work computer. Lowenstein Sandler's prior Client Alert on this opinion can be found on our web site: http://www.lowenstein.com/publications.

Julie Levinson Werner is Counsel to Lowenstein Sandler's Employment Law Practice Group and the Employment Litigation Group. Her practice encompasses a wide array of litigation under federal and state laws, including representing management in actions involving claims of discrimination, wrongful termination, and sexual harassment, as well as in contract actions, disputes over non-competition and confidentiality agreements, and other business torts. Cristina Finetti is an Associate in Lowenstein Sandler's Litigation Department and Employment Litigation Group.

Please email the authors at jwerner@lowenstein.com or cfinetti@lowenstein.com with questions about this article.