• New Test for Liability and Punitive Damage
  • January 27, 2004 | Author: Sally E. Howe
  • Law Firm: Fox Rothschild LLP - Princeton Office
  • In a trio of recent decisions, the New Jersey Supreme Court recently

    1. set a new test for liability under the Conscientious Employee Protection Act ("CEPA"),
    2. extended potential liability for punitive damages to public entities, and
    3. clarified the concept of "upper management" and the applicability of the Punitive Damages Act to claims for punitive damages against public and private entities under both CEPA and the New Jersey Law Against Discrimination ("LAD").

    In Dzwonar v. McDevitt, the Supreme Court abrogated the existing standard for CEPA liability. Previously, a plaintiff was required to show that a law, rule, regulation or clear mandate of public policy actually would have been violated by the employer if all the facts that the plaintiff alleged were true. In Dzwonar however, the Supreme Court relaxed that standard, holding that the plaintiff must merely set forth facts that would support an objectively reasonable belief that a violation had occurred. The new test raises the bar for any employer who seeks to take adverse action against an employee who claims to be a "whistleblower," since the employee is no longer required to be correct in his "whistleblowing," but merely "reasonably correct." The Court stated that if the employer asserts that it has not violated any law, rule or regulation, the trial court must identify such a statute, regulation, rule or public policy that "closely relates" to the complained-of conduct. If there is a substantial nexus found between the complained-of conduct and the law or public policy identified by the court, it is then up to a jury to determine whether the plaintiff actually held such a belief that the employer's conduct was illegal, and, if so, whether that belief was objectively reasonable.

    Inasmuch as the current test for violation of CEPA is that there must be some law, rule, regulation or clear mandate of public policy which closely relates to what the plaintiff is complaining about, which need only be identified by the Court at time of trial, employers should consult counsel before taking any adverse employment action against a complaining employee, even if the employer believes the action is otherwise justified based upon the employee's performance or lack thereof.

    Definition of "Upper Management"
    In Green v. Jersey City Board of Education and Lockley v. State of New Jersey, Department of Corrections, the Court extended liability for punitive damages under CEPA to a public entity and reiterated that one who seeks punitive damages based on either a violation of the New Jersey Law Against Discrimination ("LAD") or a violation of CEPA must prove that "upper management" acted in such a manner as to warrant the imposition of those damages. In Lockley the Court attempted to clarify the term "upper management," finding that it is a fact-sensitive inquiry which must focus on whether the alleged upper level management employee possesses "significant power, discretion and influence...," capable of furthering the mission of the organization and selecting courses of action from available alternatives. Additionally, "upper management" employees must have either "broad supervisory powers over the involved employee including the power to hire, fire, promote and discipline" or have been delegated "responsibility to execute the employer's policies to ensure a safe, productive and discrimination-free workplace." In order to determine whether upper management was actively involved in the discrimination, the fact finder is required to assess the relative position of the employee in the employer's hierarchy, the employee's function and responsibilities, and the extent of discretion the employee exercises.

    The Lockley Court also stated that although LAD actions are specifically excluded from the statutory cap set forth in the Punitive Damages Act (the lesser of five times the amount awarded as compensatory damages or $350,000), the procedural and substantive fairness requirements of the Punitive Damages Act would apply to both LAD and CEPA claims. Therefore, the Court held that even in LAD and CEPA cases, before awarding punitive damages, the jury must not only analyze the degree of reprehensibility of the conduct which forms the basis of the civil suit, but also must be cognizant of the fact that a large disparity should not exist between the harm actually suffered by the plaintiff and the award of punitive damages, keeping in mind that the Punitive Damages Act limits the defendant's liability to five times compensatory damages. Clearly, the Court's application to CEPA and the LAD, albeit not mandatory, of the ratio of compensatory to punitive damages, is a positive development for employers who may be faced with runaway punitive damages awards by juries.

    While the Court in Green reemphasized the applicability of punitive damages against a public entity in certain circumstances, the Court in Lockley held that whereas the financial condition of a private entity is relevant to a claim of punitive damages, that information is not relevant to the assessment of punitive damages against a public entity. An additional issue addressed in Green was the point at which CEPA's one-year statute of limitations begins to run in the event of a series of cumulative retaliatory acts, any one of which by its nature might not have been serious enough to have been actionable. In Green, the Court held that if the last action in a series of separate but relatively minor instances of retaliatory behavior directed against the whistleblowing employee (which combine to create a pattern of retaliatory conduct) falls within the one-year limitations period, the action is timely-filed, analogizing the situation to that of a plaintiff alleging a pattern of acts constituting a hostile work environment under the LAD.

    Finally, the Appellate Division held in Cokus v. Bristol-Meyers Squibb Company that not everything that makes an employee unhappy is an actionable adverse action by the employer within the purview of CEPA. In Cokus, the employee had raised issues concerning questionable business practices within her corporate division that allegedly amounted to fraud. She claimed she was subsequently ostracized by her co-workers and her supervisors failed to protect her anonymity in an attempt to drive her out of the workplace, for which she took medical leave. The Court noted that while the plaintiff experienced no discharge, suspension, demotion, transfer or loss of income, harassment can become an adverse employment action when it becomes so intolerable that it forces the plaintiff to resign or to transfer. In this instance, however, the Court found that the fact that plaintiff's co-workers and superiors chose to limit their contact with her to business only and otherwise ignored her, stared or glared at her when they walked by her, and purportedly talked about her behind closed doors did not create a hostile environment or constitute adverse action under CEPA, inasmuch as discrimination laws are "not intended to be a 'general civility' code for conduct in the workplace." Moreover, although the plaintiff had received a significantly adverse evaluation by her immediate supervisor, the Court found that none of the employer's alleged acts of retaliation constituted a material change in the conditions of her employment actionable under CEPA because she had complained to Human Resources and the evaluation was never made a part of her personnel file.