The number ‘15’ has significant meaning for employers in Texas. As a general rule, Texas employers who have fewer than 15 employees are not covered by the Texas Labor Code’s prohibitions against sexual harassment (and other forms of discrimination). Senate Bill 45, signed May 30 by Gov. Greg Abbott, changes that.
Changes to the Labor Code
Effective Sept. 1, any person or entity who “employs one or more employees” or who “acts directly in the interests of an employer in relation to an employee” will be a covered “employer” for purposes of sexual harassment under the Texas Labor Code.
The new law defines “Sexual harassment,” as an unwelcome sexual advance, a request for a sexual favor or any other verbal or physical conduct of a sexual nature if:
- Submission to the advance, request, or conduct is made a term or condition of an individual’s employment, either explicitly or implicitly;
- Submission to or rejection of the advance, request, or conduct by an individual is used as the basis for a decision affecting the individual’s employment;
- The advance, request, or conduct has the purpose or effect of unreasonably interfering with an individual’s work performance; or
- The advance, request, or conduct has the purpose or effect of creating an intimidating, hostile, or offensive working environment.
Senate Bill 45 then identifies a heightened standard for employer remediation of sexual harassment, providing that it is an unlawful employment practice “if sexual harassment of an employee occurs and the employer or the employer’s agents or supervisors know or should have known that the conduct constituting sexual harassment was occurring; and fail to take immediate and appropriate corrective action.”
Further, Senate Bill 45 expands the limitations period from 180 to 300 days. An employee will now have an additional 120 days to bring a claim under the Texas Labor Code with the Texas Workforce Commission Civil Rights Division.
Borrowed definitions and recasting of common law concepts
Perhaps the most significant revision is the expanded definition of “employer” for purposes of sexual harassment claims. That definition should, however, seem familiar to labor and employment practitioners. It is borrowed in part from the Fair Labor Standards Act. Under the FLSA, an employer “includes any person acting directly or indirectly in the interest of an employer in relation to an employee.” Note that the revised Labor Code definition does not include an individual acting “indirectly” and is therefore somewhere in between the FLSA’s expansive definition and the Labor Code’s definition for non-sexual-harassment matters. However, we should expect, consistent with interpretation of “employer” under the FLSA, that managers and other individuals who make employment decisions (e.g., hiring, firing, discipline and pay) and those who exercise control over the employee will be considered employers under the Labor Code for purposes of sexual harassment.
The revision also defines the unlawful employment practice in a way that combines a negligence standard from the traditional prima facie elements of a hostile work environment claim and a component of the Faragher-Ellerth defense. As a reminder, a prima facie case of a hostile work environment claim requires proof of the following: (1) they are a member of a protected class; (2) they were subjected to unwelcome harassment; (3) the harassment was based on his or her protected class; (4) the harassment affected a “term, condition, or privilege” of their employment; and (5) the employer knew or should have known of the harassment and failed to take prompt remedial action. The fifth element is required in cases in which the alleged harasser is a nonmanager. The Faragher-Ellerth defense is available to employers where no adverse employment action occurred and requires proof of the following: (1) the employer exercised reasonable care to prevent and promptly correct harassing behavior; and (2) the employee unreasonably failed to take advantage of any preventative or corrective opportunities afforded by the employer.
Under the revised law, the first element of the unlawful employment practice incorporates the above “knew” or “should have known” standard from the prima facie case of hostile work environment. The “knew” standard is well understood – it requires actual knowledge. While the new law does not make a distinction based on the position of the alleged bad actor, practitioners should expect knowledge to be imputed to the company if the actor is a management-level employee. Regarding the “should have known” standard, courts have held that it is satisfied when the alleged harassing behavior occurs out in the open or is pervasive such that the employer should have known about it through the exercise of reasonable care. Thus, courts treat the “should have known” standard as a constructive knowledge test. Keep in mind, however, that under the traditional “should have known” standard, there still must be constructive knowledge as to someone whose actual knowledge would be sufficient to impute knowledge to the employer. That is, an appropriate individual (e.g., someone with management authority) must be the individual who “should have known” of the alleged harassing conduct.
The second element of the unlawful employment practice incorporates a component of the Faragher-Ellerth defense and heightens the employer’s burden for acting. Prior to the revisions, an employer’s response to learning of potentially harassing conduct needed to be “prompt.” Now, however, the statute requires “immediate” and “appropriate” corrective action. Appropriate or adequate corrective action normally consists of an action that serves two purposes – to end the alleged harassment at hand and to deter against future harassment. Thus, corrective action will consist of some discipline against the bad actor and will take into consideration the whole of the situation.
Regarding “immediate” action, courts interpreting such a requirement find that immediate action is taken so long as some reasonable steps are taken toward stopping the conduct or investigating the matter. For example, the 10th Circuit found in Hirschfeld v. New Mexico Corr. Dep’t that immediate action was taken where the alleged harasser was placed on paid leave the evening following the lodging of a complaint, despite disciplinary action being taken about one week after the complaint, and in Kotcher v. Rosa & Sullivan Appliance Ctr., Inc., the Second Circuit held that immediate action was taken where the investigation started within 24 hours of a complaint. Thus, the hallmark of preventing and correcting alleged harassment remains an investigation in which actions are taken immediately when a complaint is received. This can be immediately separating the employee, sending the alleged bad actor home on paid leave, taking a statement, etc. What transpires next will be deemed to be reasonable based on the facts of the situation. For example, an investigation requiring voluminous interviews will take longer than an investigation in which there is only one witness.
Purpose or effect
The new law provides that sexual harassment occurs when the unwelcome conduct has the “purpose or effect” of “unreasonably interfering with an individual’s work performance” or “creating an intimidating, hostile, or offensive working environment.” Under prior Texas law, it was generally accepted that a plaintiff had to prove that the alleged harassing behavior occurred because he or she was a member of the protected category (e.g., because of sex). Note, however, that many federal circuit courts have utilized “purpose or effect” language in their decisions, as the same language is present in the Code of Federal Regulations title29 section 1604.11. Indeed, one of the seminal cases in sexual harassment, Meritor Savings Bank v. Vinson, references the “purpose or effect” language. Texas courts turn to federal court interpretations in the Fifth Circuit regarding employment claims because of the similarity in the language of Title VII and the Labor Code. Thus, an employee may choose to argue that the alleged harassing conduct had the “effect” of creating a hostile work environment in an effort to avoid showing a discriminatory intent. Of course, such an argument may fail.
Practical implications: policy reviews, training, arbitration and insurance coverage
An overarching theme in the revisions to the Labor Code is that employers must take reasonable steps to prevent harassment and immediately act when harassment is known or reported. To this end, employers should ensure that their policies and training programs are up to par.
- Employers should publish a clearly written, robust anti-harassment policy. The policy should include discussions of the policy’s objective and scope, types of sex-based harassment, examples of impermissible conduct, express directions on how to report misconduct and the investigation process. For example, policies should detail that harassment may be verbal, visual, physical or written and that it may include conduct that has the purpose or effect of causing a hostile work environment or unreasonably interfering with an employee’s work performance. Policies should also detail that harassment may take place via a variety of mediums, such as in person or via electronic means. The policy should also provide a clear, multi-option complaint process. That is, employees should be able to complain to their direct supervisor, human resources or any other member of management. Moreover, the complaint policy should make clear that retaliation is strictly prohibited and that a fear or threat of retaliation is not a basis for failing to complain. Policies should also provide guidance on how the investigation will be conducted (e.g., by a neutral individual who will interview witnesses and review documents, make a decision and then inform the complainant of the result).
- Employers should ensure that their employees are trained on the company’s antiharassment policy and what should be done in the event that someone experiences or witnesses conduct that they believe is harassing. Managers, in particular, should have additional or different training than nonmangers, emphasizing how to recognize conduct that may be harassing and changes in employee performance that could indicate harassment. Managers should also be trained on what to do when they learn of conduct that may be harassing, either by suspicion or report, so that potential violations and complaints are appropriately handled.
- Arbitration agreements that cover employment-related disputes should be reviewed to make sure that disputes that involve an individual employee as a party are covered. Arbitration is a matter of contract, and only disputes that are covered by an agreement to arbitrate may be arbitrated. Similarly, only parties to the arbitration agreement may arbitrate a claim between them unless the agreement covers a broader spectrum of individuals or entities. For example, in the wage-and-hour context, many employers have added vendors and related entities as parties against whom an employee must arbitrate a claim if the employee alleges that the vendor or related entity is an employer. Similar coverage consideration should be taken regarding insurance policies.
- Many employers have employment practices liability insurance policies. Those policies are also matters of contract and describe what types of claims and what parties may be covered by the policy in the event a claim is asserted. Because individuals may be liable for sexual harassment under the revised law, employers should confirm that their policies cover individual employees who may be named codefendants.
- Finally, employers and counsel will need to make an early evaluation whether a potential or actual conflict exists between the interests of the employer and a codefendant employee. An employer may choose to defend a sexual harassment claim in a variety of ways, including by arguing that even if the conduct did occur, it did not know of it. Such a defense may put the company and the alleged bad actor or other individual codefendant in adverse positions. In these situations, an employee may require his or her own counsel.
Stephen Quezada is an employment law attorney in Gray Reed’s Houston office. He focuses on representing public and private employers in all types of complex matters before federal and state courts and administrative agencies that enforce the numerous laws impacting the workplace. He has tried and arbitrated cases to jury verdict/award involving a wide variety of claims, including discrimination, harassment, retaliation, breach of non-compete agreements and labor grievance arbitrations pursuant to collective bargaining agreements. Stephen is Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization.