Indiana & Federal Employment Law

The Basics of Indiana and Federal Employment Law

By Betz & Associates, P.C. 2005

DISCLAIMER: The following is only a general summary. It is intended only as a general reference providing an introduction to relevant legal issues and not as legal advice. Many exceptions and specific factual issues may create other legal outcomes.

I. Introduction: Employment At Will

Indiana follows the common law doctrine which dictates that employment relationships are "at will," rather than for a fixed term. In other words, either the employee or the employer may terminate the relationship at any time for any reason, or even for no reason at all. Further, an employment relationship is not taken outside the scope of employment at will merely because a contract governs the employment relationship. The relationship between the parties is contractual in that the employer contracts to pay employee for work performed.

There are many exceptions to the employment at will doctrine, including statutory prohibitions on employment discrimination or retaliation, common law prohibitions of terminations that violate Indiana's public policy, express or implied contractual provisions that restrict the employer's right to terminate the employee, and promises of job security giving rise to promissory estoppel claims.

II. Statutory Limitations On An Employer's Right to Terminate At Will

Both federal and Indiana law prohibits discrimination in employment on the basis of certain protected characteristics. Discrimination can involve either disparate treatment or disparate impact.

A. Disparate Treatment

A plaintiff may prove discrimination either by the direct method or the indirect method. In other words, if the plaintiff does not have direct evidence of an intent to discriminate, he/she can still succeed by introducing inferential and circumstantial evidence which would support an inference of intentional discrimination. See, e.g., Adams v. Wal-Mart Stores, Inc., 324 F.3d 935 (7^th Cir. 2003).

A plaintiff may also succeed even if discrimination was not the sole motive in the decision to terminate. In such a mixed motives case, the defendant is still held liable for the discrimination, although it may be able to avoid paying damages equal to lost income if it would have taken the same action even without the discriminatory motive. 42 U.S.C. 2000e-2(m); Price Waterhouse v. Hopkins, 490 U.S. 228, 250 (1989).

To prove discrimination by circumstantial evidence, a plaintiff must first establish a prima facie case by a preponderance of the evidence. In other words, the plaintiff must show:

1. that plaintiff is a member of a protected class;
2. that she was qualified to perform the job;
3. that she suffered an adverse employment action, such as termination; and
4. that similarly situated employees outside the protected class were treated differently or that he/she was replaced by an employee outside the protected class

To determine whether a plaintiff is "similarly situated" to comparable non-protected employees outside the protected class, the courts look at a variety of factors. For examples, see EEOC v. Bd. Of Regents of U of Wisconsin, 288 F.3d 296 (7^th Circuit, 2002) and Patterson v. Avery Denison Corp., 281 F.3d 676, 680 (7^th Cir. 2002); see also Ajayi v. Aramark Business Services, Inc., 336 F.3d 520, 532 (7^th Cir. 2003) (to determine whether two employees are directly comparable, a court looks at all the relevant factors, which most often include whether the employees (i) held the same job description, (ii) were subject to the same standards, (iii) were subordinate to the same supervisor, and (iv) had comparable experience, education, and other qualifications).

After the plaintiff has satisfied his burden by establishing a prima facie case of discrimination, the burden of production shifts to the defendant. If the defendant satisfies this burden by articulating a legitimate, non-discriminatory reason for the adverse employment action, the plaintiff must present evidence which would allow a jury to find the defendant's articulated reason for the termination lacks credibility, and therefore a pretext for discrimination. St. Mary's Honor Center v. Hicks, 509 U.S. 502 (1993).

The trier of fact may infer that the employer was motivated by unlawful discrimination from the plaintiffs prima facie case combined with evidence that the employers stated justification for the termination was untruthful. Reeves v. Sanderson Plumbing, 530 U.S. 133, 149 (2000).

Individuals may not be held liable under Title VII for any discriminatory conduct. See, e.g., Wathen v. General Elec., 115 F.3d 400 (6th Cir. 1997).

Harassment on the basis of a protected characteristic, such as sex or race, also violates Title VII. Harassment has been historically divided into two types, quid pro quo and hostile environment. However, the significance of the distinction between the two types has lessened since the U.S. Supreme Court's decisions in Faragher v. City of Boca Raton, 118 S.Ct. 2275 (1998) and Burlington Indus. v. Ellerth, 118 S.Ct. 2257 (1998).

To succeed on a harassment claim, a plaintiff must show:

1. that he/she was a member of a protected class;
2. that he/she was subjected to unwelcome harassment;
3. that the harassment complained of was based on a protected characteristic;
4. that the harassment was sufficiently severe or pervasive to create a hostile or abusive working environment; and
5. that a basis of employer liability exists.

The Supreme Court has explored issues of vicarious liability in Faragher and Ellerth.The employer is per se vicariously liable when the harassing supervisor has taken a tangible adverse action (such as termination, demotion, or a change in benefits or compensation) against the harassment victim, and no defense is available. Most post Faragher/Ellerth courts have held a constructive discharge can be a "tangible employment action." See, e.g., Phillips v. Taco Bell Corp., 156 F. 3d 884, 889 (8^th Cir.1998). For other types of harassment where no tangible employment action has been taken, the employer may raise an affirmative defense by showing that he exercised reasonable care to prevent and correct promptly any sexually harassing behavior and that the plaintiff unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer.

In order to satisfy his/her duty to exercise reasonable care, the employer must establish of a clear sexual harassment policy that prohibits both retaliation and harassment, and offers an effective complaint process, investigation process, and a remedial / corrective process to cure instances of harassment. The policy must be effectively delivered to the employees.

More recent cases also show that Faragher and Ellerth apply to harassment on the basis of race. Eznell v. Potter, 400 F.3d 1041 (7^th Cir. 2005).

Same sex harassment violates Title VII as long as the harassment was because of the victim's gender. Oncale v. Sundowner Offshore Services, 118 S.Ct. 998 (1998).

When the harasser is a co-worker rather than a supervisor or the employer, the plaintiff can only recover if the employer knew or should have known about the harassment and failed to take prompt and effective corrective action. Cooper-Schut v. Visteon Automotive Systems, 361 F.3d 421 (7^th Cir. 2004).

B. Disparate Impact

Disparate impact under Title VII refers to situations where an employer may lack overt intent to discriminate but has an employment practice or policy which, though facially neutral, adversely impacts a specific protected group. 42 U.S.C 2000e-2(k); Griggs v. Duke Power Co., 401 U.S. 424 (1971). Under this theory of discrimination, a court focuses on discriminatory results, rather than discriminatory intent, and usually relies on statistical analysis.

III. Race, Color, Religion, Sex Or National Origin

Title VII of the Civil Rights Act of 1964 ("Title VII"), 42 U.S.C. 2000e-2; IC 22-9-1-2

A. Damages

The amount of damages a plaintiff may receive upon prevailing in a lawsuit may be capped by federal or state law. Title VII limits damages, but the total caps set forth in 42 U.S.C. 1981a apply to each party, not to each claim, and front pay is not included in the damages cap. Hudson v. Reno, 130 F.3d 1193 (6th Cir.1997). Pollard v. E.I. DuPont De Nemours & Co., 532 U.S. 843 (2001).

Under Title VII, a Plaintiff may recover punitive damages upon proving only that the defendant acted with malice or reckless disregard to the federally protected rights of the plaintiff. Kolstad v. American Dental Assoc., 527 U.S. 526 (1999).

IV. Retaliation For Objecting to or Pursuing a Claim of Race, Color, Religion, Sex or National Origin Discrimination

Title VII, 42 U.S.C. 2000e-3.

Title VII expressly prohibits retaliating against an employee because he/she opposed unlawful discrimination. See Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e-3(a). To prove a prima facie case of retaliation, the plaintiff must show that he/she: (1) engaged in protected activity; (2) was performing the job according to the employers legitimate expectations; (3) was the subject of adverse employment action; and (4) was treated less favorably than similarly situated employees who did not engage in protected activity. Luckie v. Ameritech Corp., 389 F.3d 708 (7^th Cir. 2004).

"In analyzing claims of retaliation we apply the three-stage test originally formulated to resolve actions brought under Title 7 of the Civil Rights Act of 1964, 42 U.S.C. 2000e, et seq.. Indiana Civil Rights Comm'n v. Culver Educ. Found. 535 N.E.2d 112, 115 (Ind.1989) Fuller v. Allison Gas Turbine Div., General Motors670 N.E.2d 64, 68 (Ind. App. 1996).

V. Disability

Americans with Disabilities Act ("ADA"), 42 U.S.C. 12112; Ind. Code 22-9-5 et. seq.

Under the ADA, employers have the duty to refrain from discriminating against >employees with disabilities, and the duty to accommodate employees with disabilities, unless accommodation cannot be made reasonably or without resulting in undue hardship.

The method and order of proof of a discrimination claim under the ADA is similar to Title VII, except that the plaintiff must show not only that he/she has a disability as defined by the Act, but also that he/she is a "qualified individual with a disability," meaning that he/she can perform the essential functions of her position with or without reasonable accommodation. Hoffman v. Caterpillar, Inc., 256 F.3d 568 (7^th Cir. 2001)

Under the ADA, a "disability" is "a physical or mental impairment that substantially limits one or more major life activities, a record of such impairment, or being regarded as having such an impairment." 42 U.S.C. 12102(2). The definition is similar under the Indiana Code. See 29 C.F.R. 60-741.2 and Ind. Code 22-9-5 et. seq. A "physical or mental impairment" is defined as:

1. Any physiological disorder, or condition, cosmetic disfigurement, or anatomical loss affecting one or more of the following body systems: neurological, musculoskeletal, special sense organs, respiratory (including speech organs), cardiovascular, reproductive, digestive, genito-urinary, hemic and lymphatic, skin and endocrine; or
2. Any mental or psychological disorder, such as mental retardation, organic brain syndrome, emotional or mental illness, and specific learning disabilities.

"Major life activities" include walking, seeing, hearing, speaking, breathing, learning, caring for oneself, performing manual tasks, and working. 29 C.F.R. 1630.2(i). "Substantially limits" means:

1. Unable to perform a major life activity that the average person in the general population can perform; or
2. Significantly restricted as to the condition, manner or duration under which an individual can perform a particular major life activity as compared to the condition, manner, or duration under which the average person in the general population can perform the same major life activity.

Asymptomatic HIV infection is a disability under the ADA. Bragdon v. Sidney Abott, 118 S.Ct. 2196 (1998). In so ruling, the Supreme Court concluded that reproduction is a major life activity.

The court will individually assess an individual's impairment, considering mitigating factors such as accommodations or medications. Murphy v. UPS, 527 U.S. 516 (1999); Sutton v. United Airlines, 527 U.S. 471 (1999); Albertson's v. Kirkingburg, 527 U.S 555 (1999). Other factors the court may consider include:

1. nature and severity of the impairment;
2. duration of the impairment; and
3. permanence or long-term impact of the impairment.

An ADA plaintiff may apply for or receive Social Security Disability Insurance ("SSDI") benefits and still pursue his ADA claim nor does it raise a strong presumption sufficient to judicially estop him from representing that he was able to perform the essential functions of his position. Cleveland v. Policy Management Systems Corp., 526 U.S. 795 (1999).

VI. Retaliation for Objecting to or Pursuing a Claim of Disability Discrimination

Title VII, 42 U.S.C. 12203; 910 IAC 3-3-9; Ind. Code 22-9-5-27.

The method of proof here is the same as a Title VII retaliation claim.

VII. Age

Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. 623; IC 22-9-2-1 et. seq. all prohibit discrimination in employment against employees 40 years of age and older (Indianas prohibition is limited to employees between ages 40-70).

For age discrimination claims, the method and order of proof is the same as under Title VII except that an age discrimination plaintiff need not prove his replacement was outside the protected class (<40), but rather must prove only that the replacement was substantially younger. O'Connor v. Consolidated Coin Caterers Corp., 517 U.S. 308 (1996).

VIII. Retaliation for Objecting to or Pursuing a Claim of Age Discrimination

ADEA, 29 U.S.C. 623(d); Ind. Code 22-9-2-8

The method of proof here is the same as a Title VII retaliation claim.

IX. Workers Compensation

Ind. Code 22-3-2 et. seq.

X. Retaliation for Making a Workers Compensation Claim

Ind. Code 22-3-2-15

No contract, agreement (written or implied), rule, or other device shall, in any manner, operate to relieve any employer in whole or in part of any obligation created by [this Act]. Ind. Code. 22-3-2-15.

Within the framework of 22-2-2-15, the threat of discharge in retaliation for filing a claim under Workers Compensation laws is a device and hence, in clear contravention of public policy. Frampton v. Central Indiana Gas Co., 297 N.E.2d 425, 428 (Ind. 1973).

XI. Request For or Use of Family or Medical Leave

Family and Medical Leave Act ("FMLA"), 29 U.S.C. 2615.

Under the Family and Medical Leave Act ("FMLA"), eligible employees may take up to 12 weeks of leave per year in which to recover from a serious health condition, to care for a close family member with a serious health condition, or for the birth or adoption of a child. 29 U.S.C. 2612. When the employee returns from FMLA leave, he/she is entitled to be restored to the same position she held prior to taking leave, or an equivalent position. 29 U.S.C. 2614. Further, the employee should not lose any employment benefit accrued prior to the date on which the leave commenced. Id. Finally, the FMLA prohibits an employer from doing anything to "interfere with, restrain, or deny the exercise of or the attempt to exercise, any right provided" for by the Act. 29 U.S.C. 2615.

In order to establish a violation of the FMLA, the plaintiff must establish that he/she engaged in FMLA-protected activity, that he/she subsequently experienced an adverse employment action by the employer, and that a causal connection existed between her protected activity and the adverse action. Franzoni v. Hartmarx Corp., 300 F.3d 767 (7^th Cir. 2002).

An employer cannot consider the taking of FMLA leave when taking employment actions, nor can it count FMLA leave under a "no fault" attendance policy. 29 C.F.R. 825.220(c); Stoops v. One Call Communications, Inc., 141 F.3d 309 (7^th Cir. 1998).

 XII. Use or Expected Use of Certain Employee Benefits

Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. 1140 

To prove a prima facie case, a plaintiff must establish that he/she is or was: (1) a member of the protected class; (2) qualified for the position; and (3) terminated or denied employment by an employer with the specific intent of preventing or retaliating for the use of benefits. Lindemann v. Mobile Oil Corp., 141 F.3d 290 (7^th Cir. 1998); see also Feldman v. American Memorial Life Ins. Co., 196 F.3d 783 (7^th Cir. 1999).

The method and order of proof is generally the same as under Title VII.

"Employee welfare benefit plan" includes any plan, fund, or program which is maintained by the employer or an employee organization for the purpose of providing for its participants or their beneficiaries medical care benefits, or benefits in the event of sickness, accident, disability, death, unemployment, vacation, apprenticeship, day care centers, scholarship funds, or prepaid legal services. 29 U.S.C. 1002(1). "Employee pension benefit plan" includes any plan, fund, or program which is maintained by the employer or an employee organization for the purpose of providing retirement income to employees or which results in a deferral of income for periods extending beyond the employees' regular employment. 29 U.S.C. 1002(2).

XIII. Retaliation for Objecting to or Pursuing a Wage-Hour Claim 

Fair Labor Standards Act ("FLSA"), 29 U.S.C. 215(3); Ind. Code 22-2-2 et. seq., 22-2-4 et. seq., 22-2-9 et. seq.

The method of proof here is essentially the same as a Title VII retaliation claim.

XIV. Contractual Limitations on An Employer's Right to Terminate At Will

A. Express Contracts

Where there is an express employment contract for a definite term of employment, the employer generally may only discharge the employee before the termination of the contract if there is just cause for the termination. DeCalonne v. G.I. Consultants, Inc., 197 F.Supp.2d 1126 (N.D.Ind. 2002).

B. Promissory Estoppel

Indiana courts also recognize a limited exception to the employment at will doctrine for promissory estoppel. To recover under this doctrine, the employee must show the employer made a promise to the employee, that the employee relied on that promise to his detriment. Orr v. Westminster Village North, Inc., 689 N.E.2d 712, 717 (Ind. 1997). See also Jarboe v. Landmark Community Newspapers of Indiana, Inc., 644 N.E.2d 118, 121 (Ind. 1995).

C. Damages

Only the traditional contract damages (such as actual economic loss) are available for all types of contract or quasi-contract claims. In an employment case, for example, a plaintiff could possibly recover lost income & benefits but could not recover emotional distress, punitive damages or attorney's fees.

Jury trials are available for contract-based claims.

XV. Common Law Limitations On An Employer's Right to Terminate At Will

A. Public Policy

Indiana courts have been reluctant to recognize a public policy exception to the employment at will doctrine. See, e.g., Hamblin v. Danners, Inc., 478 N.E.2d 926 (Ind. App. 1985). While not recognizing a generalized public policy exception, Indiana courts have recognized an exception to the general rule when an employee is terminated for exercising a statutorily conferred right. Frampton v. Central Indiana Gas Co., 297 N.E.2d 425 (Ind. 1973). Further, Indiana courts have recognized that an employer may be held liable for terminating an at-will employee for refusal to engage in illegal conduct. McClanahan v. Remington Freight Lines, Inc., 517 N.E.2d 390 (Ind. 1988).

B. Other Claims

1. Negligent Infliction of Emotional Distress

Under Indiana law, when a plaintiff sustains a direct impact by the negligence of another and, by virtue of that direct involvement sustains an emotional trauma which is serious in nature and of a kind and extent normally expected to occur in a reasonable person,such a plaintiff is entitled to maintain an action to recover for that emotional trauma without regard to whether the emotional trauma arises out of or accompanies any physical injury to the plaintiff. Shuamber v. Henderson, 579 N.E.2d 452, 456 (Ind. 1991); Kleim v. Potter, 783 N.E.2d 731, 733-734 (Ind. App. 2003).

2. Intentional Infliction of Emotional Distress

A plaintiff can establish intentional infliction of emotional distress by proving that the defendant engaged in extreme or outrageous conduct that recklessly or intentionally caused severe emotional distress to the plaintiff. Bradley v. Hall, 720 N.E.2d 747, 752 (Ind. App. 1999). Extreme and outrageous conduct has been defined as a recitation of facts which would arouse in an average member of the community his resentment against the actor, and lead him to exclaim, Outrageous! Creel v. I.C.E. & Associates, Inc., 771 N.E.2d 1276, 1282 (Ind. App. 2002). As a result, what constitutes extreme and outrageous conduct depends, in part, upon prevailing cultural norms and values. Id. at 753. Thus, while extreme and outrageous conduct may, in the appropriate case, be decided as a matter of law, it will normally be a question of fact for the jury to decide. Id. (declining to determine as a matter of law whether defendants conduct was extreme and outrageous), citing Conwell v. Beatty, 667 N.E.2d 768, 775-777 (Ind. App. 1996).

3. Workplace Bullying

Workplace bullying is slowly gaining more attention as a serious problem meriting legal relief. In essence, it is a simple assault claim, usually coupled with a claim for intentional infliction of emotional distress or tortious interference with contractual relations. Expert testimony is extremely important in workplace bullying cases to show the nature of the emotional distress inflicted. Betz & Associates recently won a workplace bullying case, Doescher v. Raess, which has received enormous publicity. See, e.g., Workplace bullies more than mean, The Indianapolis Star, March 20 2005; Doctor must pay in bullying case, The Indianapolis Star, March 5, 2005; Hospital bullying trial under way, The Indianapolis Star, March 2, 2005. In part, the publicity of this case is due to the fact that the problem of workplace bullying has persisted without a remedy for so long.

4. Tortious Interference with a Business or Contractual Relationship

The elements of a claim for tortious interference with an employment relationship are: (1) the existence of a valid employment relationship; (2) the defendants knowledge of the existence of the relationship; (3) the defendants reckless or intentional[1] interference with that relationship; (4) the absence of justification; and (5) damages resulting from defendants wrongful interference with the relationship. Bradley v. Hall, 720 N.E.2d 747, 750 (Ind. Ct. App. 1999). Similarly, under Indiana law, five elements are necessary to support a claim for tortious interference with contract: (1) the existence of a valid and enforceable contract, (2) defendant's knowledge of that contract, (3) defendant's intentional inducement to breach that contract, (4) the absence of justification, and (5) damages resulting from the breach. See Gatto v. St. Richard School, Inc., 774 N.E.2d 914, 922 (Ind. Ct. App. 2002) (citations omitted).

5. Covenants Not to Compete

Covenants not to compete, or clauses in employment contracts which purport to restrict an employees future employment opportunities, may be enforceable. To enforce such a restrictive covenant, the former employer bears the burden of showing that the covenant is reasonable and necessary in light of the circumstances. Vukovich v. Coleman, 789 N.E.2d 520, 525 (Ind.App. 2003). Because covenants not to compete are in restraint of trade and are not favored by the law, they are strictly construed against the employer and are enforced only if reasonable with respect to the legitimate interests of the employer, restrictions on the employee, and the public interest. Id. To determine the reasonableness of a restrictive covenant, it must first be determined whether the employer has asserted a legitimate interest that may be protected by a covenant. Id .

If the employer has asserted a legitimate interest which is entitled to protection, then it must be determined whether the scope of the agreement is reasonable in terms of time, geography, and types of activity prohibited. Vukovich, 789 N.E.2d at 525. A restrictive covenant that would limit ones employment with a competitor beyond the scope of his present employment is void. Id. In determining the reasonableness of the restrictions set forth in a restrictive covenant, a court must look to:

a. Whether the restrictions are wider than is necessary for the protection of the covenantee in some legitimate interest;

b. The effect of the promise upon the covenantor; and

c. The effect upon the public.

Titus v. Rheitone, Inc. , 758 N.E.2d 85, 93 (Ind.App. 2001). Further, a covenant that would limit ones employment with a competitor beyond the scope of his present employment is void. Vukovich, 789 N.E.2d at 525.

Courts may also refuse to enforce covenants not to compete if the employer has breached the employment contract in other ways. For example, in one case, the Court would not enforce a restrictive covenant against an accountant-employee, because the employer first materially breached the employment contract by: (1) failing to compensate the employee for hours worked in excess of the agreed hours; (2) failing to review the employees salary on an annual basis; (3) failing to annually adjust the employees salary for cost of living increases; and (4) terminating employees employment without giving 30 days notice, all in violation of the employment contract. Sallee v. Mason, 714 N.E.2d 757, at 761-762 (Ind. App. 1999). Similarly, in another case, the Court would not enforce a restrictive covenant against two employees because the employer unilaterally cut the employees weekly draw and refused to pay them their April biannual 20% draw. Liocci v. Cardinal Assoc., Inc., 492 N.E.2d 48 at 52-54 (Ind. App. 1986).