Author: Judy Greenwald

Novartis Pharmaceuticals Corp. and plaintiffs law firm Sanford Wittels & Heisler L.L.P. have agreed to a $99 million settlement to resolve a wage-and-hour class action lawsuit originally filed in March 2006.

In July 2010, the 2nd U.S. Circuit Court of Appeals in New York ruled in In re Novartis Wage and Hour Litigation that pharmaceutical sales representatives are not exempt from overtime.

In February 2011, the U.S. Supreme Court refused East Hanover, New Jersey-based Novartis’ application to review the appellate decision, allowing that decision to stand, according to New York-based Sanford Wittels.

The $99 million settlement resolves the wage-and-hour claims brought in 2006, as well as additional wage-and-hour claims covering a more recent time period, according to the joint announcement by Novartis and Sanford Wittels.

According to the law firm, the settlement affects more than 7,000 current and former Novartis sales representatives. The agreement remains subject to final court approval, which may take several months, according to the joint statement.

Novartis President André Wyss said in the statement that the settlement is in the best interest of the firm’s employees and the company.

“We have been litigating this case for nearly six years, and the company has determined that it is time to resolve these wage-and-hour claims,” Wyss said.

“We consistently compensate all employees fairly in accordance with the U.S. Fair Labor Standards Act and applicable state laws. We remain confident that sales representatives should continue to be classified as exempt from overtime because their autonomy and incentive compensation are typical of exempt employees as defined by U.S. law,” said Wyss.

Late last year, the U.S. Supreme Court agreed to consider the February 2011 decision by the 9th U.S. Circuit Court of Appeals in Michael Christopher et al. vs. SmithKline Beecham Corp., in which the San Francisco-based appeals court ruled pharmaceutical sales reps of the GlaxoSmithKline P.L.C. unit are outside sales employees under the Fair Labor Standards Act of 1938 and are exempt from being paid overtime.

Referring to this, Sanford Wittels attorney David Sanford, who is lead counsel in the Novartis case, said in the statement, “While we remain confident that the United States Supreme Court later this year will uphold the Department of Labor’s interpretation of wage-and-hour law, the risks of further litigation are great.”

Sanford said, “It is a fair and equitable result and can serve as an exemplar for companies around the United States that face wage-and-hour litigation.”

Judy Greenwald writes for Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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A U.S. Supreme Court decision upholding an Arizona immigration law could result in employers facing a patchwork of onerous anti-immigration laws unless Congress decides to take action, attorneys say.

Furthermore, the court’s 5-3 decision in late May in Chamber of Commerce of the United States of America et al. v. Michael B. Whiting et al. gives implicit approval to a sometimes unreliable federal immigration verification system, which also can cause problems for employers, observers say.

In its ruling, the high court upheld lower court rulings that found that Arizona’s 2007 Legal Arizona Workers Act is not pre-empted by federal law.

Under the Arizona law, employers that violate the law a second time by knowingly hiring an illegal immigrant can lose their business license.

The Arizona law requires that after hiring an employee, all Arizona employers must verify their employment eligibility using E-Verify, according to the ruling.

Congress established E-Verify, an Internet-based system under which an employer can verify an employee’s work authorization status, in the Illegal Immigration Reform and Immigrant Responsibility Act of 1996.

In ruling on the Arizona law, the high court said the Immigration Reform and Control Act of 1986 expressly pre-empts “any state or local law imposing civil or criminal sanctions (other than through licensing and similar laws) upon those who employ, or recruit or refer for a fee for employment unauthorized aliens.”

According to the opinion, the U.S. Chamber of Commerce had argued “that the Arizona law’s provisions allowing the suspension and revocation of business licenses for employing unauthorized aliens were both expressly and impliedly pre-empted by federal immigration law, and that the mandatory use of E-Verify was impliedly pre-empted.”

But the Supreme Court disagreed. The majority said the Washington-based Chamber of Commerce “and the United States as amicus argue the Arizona law is not a ‘licensing’ law because it operates only to suspend and revoke licenses rather than to grant them.” However, the high court ruled, “this is contrary to the definition that Congress itself has codified. … It is also contrary to common sense. There is no basis in law, fact or logic for deeming a law that grants licenses a licensing law, but a law that suspends or revokes those very licenses (is) something else altogether.”

Arizona’s procedures “simply implement the sanctions that Congress expressly allowed Arizona to pursue through licensing laws,” the majority ruled, saying the state “went the extra mile in ensuring that its law closely tracks [the Immigration Reform and Control Act’s] provisions in all material definitions.”

Consistent with law
On the E-Verify issue, the high court ruled that Arizona’s requirement that employers use it “is entirely consistent with the federal law. … In fact, the federal government has consistently expanded and encouraged the use of E-Verify,” the high court ruled.

The Chamber of Commerce and Supreme Court Justice Stephen Breyer, in his dissenting opinion, argued that employers “will err on the side of discrimination rather than risk the ‘business death penalty’ by ‘hiring unauthorized workers.’ ”

However, the majority, in the opinion written by Chief Justice John Roberts, responded by saying license termination “is not an available sanction” for simply hiring unauthorized workers, and only “far more egregious violations of the law trigger that consequence. … An employer acting in good faith need have no fear of the sanctions.”

Justice Elena Kagan did not participate.

Reacting to the ruling, the Chamber of Commerce’s National Chamber Litigation Center issued a written statement that said, in part, the decision “does not give states or local governments a blank check to pass any and every immigration law,” which “continues to be predominantly a federal concern.”

David Selden, a partner with the Phoenix-based Cavanagh Law Firm who filed the original lawsuit on behalf of two Arizona business groups, said the decision in the immediate future “is going to result in a lot of states enacting a lot of different immigration laws with penalties against employers.”

In the longer term, it “will increase pressure on Congress to reform federal immigration laws, because having a patchwork of 50 different immigration laws in the different states is burdensome for large and small businesses to have to worry about complying with,” Selden said.

This is a “wake-up call” to Congress, said Elena Park, a member of Cozen O’Connor in West Conshohocken, Pennsylvania.

The decision “also shows the importance” of employers conducting self-audits and “by having comprehensive hiring practices so they’re prepared” if there is workforce enforcement action, Selden said.

E-Verify concerns
Observers say one major concern is the ruling’s implicit endorsement of E-Verify, which is a voluntary federal system, but mandated by Arizona law. Mississippi, Utah and Virginia also have such a mandate, according to the ruling.

John Doran, a shareholder with Greenberg Traurig in Phoenix, said, “The obligations that are required under Arizona law, including a mandatory use of E-Verify, create significant burdens for employers and, frankly, you wonder if all of a sudden, you have a national E-Verify mandate” as a result of the ruling.

Observers say the E-Verify system is flawed and prone to error. “It isn’t quite as effective as people might think it is,” said Craig Peterson, a lawyer with Dorsey & Whitney in Minneapolis.

“They do get it wrong, and when they do get it wrong, there are serious consequences,” said Robert Whitehill, a partner with Fox Rothschild in Pittsburgh, of the E-Verify system.

Furthermore, Whitehill said, “I think it’s entirely possible that [the ruling] will have a discriminatory effect.”

David Grunblatt, a partner with Proskauer Rose in Newark, New Jersey, said employers “will err on the side of compliance, even if it violates the rights of the individual, because their bigger fear” is of the state government.

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Employers can take several steps to prevent gender discrimination charges and, if they are made, address them and limit any potential damages, experts say.

The first step is an effective policy.

Keep it simple, says Robin Shea, a partner with law firm Constangy, Brooks & Smith in Winston-Salem, North Carolina. Simply say, “We will not discriminate” on the basis of protected categories.

Employers’ anti-discrimination policies should not be “too elaborate,” Shea says. “In fact, sometimes, I think, too much detail can cause problems, because if the employer doesn’t follow it to the letter, they get into trouble for not following their policy,” she says.

But employers must move beyond merely having a policy, observers say.

If “you just have a paper policy nobody really pays attention to, or nobody spends much time emphasizing or enforcing, that’s when, in my view, problems can arise,” says Paul Starkman, a partner with law firm Arnstein & Lehr in Chicago.

“Make sure that the policy is adhered to and that decision-makers generally aren’t making decisions based on stereotypes about gender roles,” says Richard Tuschman, a partner with law firm Duane Morris in Miami. “For example, an employer should not pay a man more because he’s the breadwinner of the family if, in fact, that’s the case, which in many cases these days, it’s not.” That “would be discriminatory,” he says.

If managers are trained “to promptly spot and correct a problem, more often than not it’s not going to grow into litigation,” Starkman says.

Shea says employers “do need to make sure, as a matter of practice, that they are conducting regular harassment training. Probably once a year would be ideal.”

Tracey Kennedy, a partner with law firm Sheppard Mullin Richter & Hampton in Los Angeles, says, “I think many employers see training as too costly,” but “it’s the difference between investing in something and paying for it at the back end” in the form of lawsuits.

Starkman says employers should have “a good structure and procedures in place where employees can have a place where they feel safe about raising these issues, even if they don’t need to or want to file a formal complaint.”

Gregg Lemley, a shareholder with Ogletree, Deakins, Nash, Smoak & Stewart in St. Louis, says employers also should be wary of “unexplained disparities in pay for people who are performing similar work.”

Many companies “aren’t really making an effort to be sure they have consistent benchmarks to be sure there’s no adverse impact” with regard to either the salary at which they hire people, or in how their salary increases over time, he says.

Shea suggests that employers conduct a pay audit annually to look for “any discrepancies that can’t be explained,” and make appropriate corrections.

Communications also are important.

Shea says sometimes employers “don’t do a very good job” of explaining that someone failed to get promoted not because he or she was being discriminated against, but for another “very good reason.”

“You just have to sit down sometimes with the employee, and say, ‘Here are your qualifications. This is why we thought [another employee] was more applicable to this position,’ ” she says. “Nobody ever wants to do this because it has the potential of being an unpleasant conversation, but I think this makes a big difference to people if you can try to explain those things to them.”

This issue should be considered during recruitment, as well, says Martha Zackin, of counsel to Boston-based law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo. It is “very tempting for people who do recruitment to go by word of mouth and recruit the people that you know, who are like you.” Instead, employers should seek to have a more diverse workforce.

Miles says once a complaint is made, “it’s important to have an interactive dialogue with the employee to understand exactly what their problem is and what they’re expecting to be done about it.”

“Certainly, if the concern hasn’t been brought to the attention of the employer” before a charge is filed, “it’s very important that the employer promptly investigate the allegations and make a determination if there’s any merit to the allegations” and try to address it, says Emily Borna, a partner with law firm Jackson Lewis in Atlanta.

If the employer finds that there has been disparate treatment “or adverse action because of someone’s protected status,” it should be resolved right away and appropriate action taken to stop it, Borna says.

Furthermore, if the person bringing the charge still is in the workplace, it is important “to be sure there’s no unlawful retaliation” against that person, says Borna. “But at the same time, that person isn’t entitled to special treatment … or to be insulated from any action if there’s wrongdoing on some other basis,” she says.

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Discrimination claims filed by Muslims with the U.S. Equal Employment Opportunity Commission were increasing before controversy erupted over a planned Islamic community center blocks from New York’s ground zero.

The number of claims more than doubled to 1,490 in fiscal 2009, which ended Sept. 30, from 697 in fiscal 2004, according to the agency. These claims resulted in 803 EEOC charges, which can include more than one claim.

Of the 10,005 claims concerning discrimination against Muslims in the past 10 years, the most frequent was discharge (2,722), followed by harassment (1,861) and terms and conditions of employment (1,419).

Of the 803 charges filed in fiscal 2009, the most were filed in Georgia (142), followed by Minnesota (64), and California and Colorado (58 each).

The charges filed by Muslims also outweighed those filed by individuals of other identified religious groups.

The EEOC has been actively pursuing cases in which Muslims are discriminated against since the Sept. 11 terrorist attacks, says Mary Jo O’Neill, regional attorney for the EEOC’s Phoenix District Office.

“These are communities that we have done outreach forever since 9/11,” O’Neill says. “We worried about a backlash after the tragedy of 9/11, and we’ve continued our relationship with the community to make sure they know” there are resources available if its members experience discrimination.

The cases include two lawsuits filed Aug. 31 by the EEOC against Greeley, Colorado-based meat-packing company JBS Swift & Co., which charged the company with creating a hostile work environment for its Somali and Muslim employees and with engaging in religious discrimination when it failed to reasonably accommodate Muslim employees by refusing to allow them to pray according to their religious beliefs.

The EEOC also accused Swift of retaliation against the workers by terminating their employment when they asked that their evening break be moved so they could pray at sundown during Ramadan—the Islamic holy month that requires daily fasting from sunrise to sunset—and break their fast. A Swift representative could not be reached for comment.

Also in August, the EEOC and Electrolux Group settled a discrimination charge by a Muslim production employee at the appliance manufacturer’s St. Cloud, Minnesota, plant concerning breaking the Ramadan fast. The issue arose as a result of a new Electrolux health and safety policy that prohibits food in production areas of the plant.

Electrolux agreed to further modify its break time schedule during Ramadan so Muslim employees could pray and break their fasts after sundown safely outside the production area, according to the EEOC.

In a written statement, Electrolux St. Cloud plant manager John Valence said the adjustment “accommodates the needs of our Muslim employees without compromising an important health and safety policy.”

Another contentious subject has been the hijab, the headscarf worn by Muslim women. In September, the EEOC filed a workplace discrimination lawsuit against New Albany, Ohio-based clothing manufacturer Abercrombie & Fitch Co., alleging it had violated federal law when it refused to hire a Muslim applicant for a job stocking merchandise because she wore a hijab. The EEOC filed a lawsuit about the same issue in September 2009. 

 A company representative could not be reached.

In a highly publicized case, a Muslim employee in Disney’s Grand Californian Hotel & Spa in Anaheim, California, filed a religious discrimination claim in August against Walt Disney Co. with the EEOC after it sent her home for refusing to take off her hijab while she worked as a hostess at one of the hotel’s restaurants. Imane Boudlal, 26, of Anaheim, was told that the hijab did not comply with the “Disney look,” according to a written statement by her union, New York-based Unite Here.

A Disney representative could not be reached for comment.

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As the use of temporary workers increases, employers need to guard against the potential liabilities and other pitfalls of bringing in such workers, experts say.

Even though a staffing agency may cut a temporary worker’s check, experts say employers remain obligated to comply with state and federal employment laws, including discrimination statutes. There also are situations in which an employer could be required to provide benefits, experts say.

After several months of declines in the number of temporary help services employees in the U.S. workforce, the figure hit a yearly low in July 2009 at 1.7 million. Since then, the number has risen, hitting an estimated 1.9 million in December on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. The BLS does not track temporary workers or independent contractors hired directly by employers, a much smaller number than temp workers hired through agencies.

Observers say the recent temp hiring upswing could reflect an improving economy.

“I’m hopeful this is a sign that employers are dipping their toe back into the water,” says Lorie E. Almon, a partner with Seyfarth Shaw in New York, who has seen increased client interest in hiring temporary workers.

Attorneys say temporary workers hired through staffing agencies generally are considered to be employed by both the agency and company, even though the agency pays the salary.

“Some employers don’t realize when they hire temporary employees through temp agencies they’re potentially exposing themselves to most, if not all, the same risks that are involved in directly hiring employees,” says Enzo Der Boghossian, an associate with law firm Proskauer Rose in Los Angeles.

“As long as you control those employees and you require them to adhere to your policies” and they are directly supervised by the firm, “they can be found to essentially be your employee under various employment laws,” says Mark M. Schorr, a partner with law firm Erickson & Sederstrom in Lincoln, Nebraska.

“There are elaborate agreements that dictate that the individual remains the legal employee of the temporary agency, and the temporary agency is legally bound to pay their wages and their workers’ compensation insurance and all of that,” Schorr says. But when it comes to employment, discrimination and sexual harassment claims, “a myriad of laws” protect workers even though “they’re not technically employed by that employer,” he says.

Whether workers are brought in by a staffing agency or directly, observers say employers need to be concerned about employment laws and benefits.

A major decision in this area was the 1999 federal appeals court ruling in Donna Vizcaino et al. v. Microsoft Corp., which cost the Redmond, Washington-based software giant more than $100 million in stock options when the court held that temporary workers were entitled to the same benefits accorded full-time Microsoft employees.

“Most employers have since [Microsoft] tried to address that issue by being more specific” in their employee benefit plan and employee handbook language, says Jeff Starling III, a partner with law firm Balch & Bingham in Birmingham, Alabama.

Failing to clearly define what is considered temporary employment “runs a real risk that one of those contingent workers could claim they were entitled to benefits under that plan. That’s probably the biggest source of potential liability, and one that’s generally best addressed through careful analysis of the benefit plans and the definitions used in those benefits plans,” Starling says.

Using an agency to hire temporary workers mitigates some of the potential risk of someone seeking reclassification as an employee, Almon says.

If an employer hires temp workers directly, it should be clear “that these are temporary assignments and to define in contracts or employment polices what benefits apply to the temp employee versus the full-time employees,” including clearly stating they are not entitled to health care, 401(k) plans and vacations, Der Boghossian says.

Observers say the degree to which the employer controls the job performance of the directly hired temp is important in determining his or her employment status. As result, employers should avoid situations where an independent contractor is told what hours to work and treated much the same as a regular employee, which Starling says could obligate the firm to pay benefits.

Employers also should comply with employment laws, observers say.

“Just because they aren’t on your payroll directly doesn’t mean you still don’t have to comply with most employment laws related to them,” says Benjamin P. Roach, a shareholder with law firm Nyemaster, Goode, West, Hansell & O’Brien in Des Moines, Iowa.

Employers “need to ensure that their temp employees are aware of, and following, the workplace harassment and discrimination policies that they have,” Der Boghossian says. “There is also the possibility of negligent hiring and negligent retention” liability if the temp agency is not conducting thorough background checks, he said.

Employers should seek indemnity agreements in the contracts they sign with temporary staffing agencies, “so that the temp agency retains liability for any employment-related claims and agrees to indemnify the employer for any losses they might suffer” if any claims are brought against it by a temp employee, Der Boghossian said.

Employers also must determine who at the temp agency is responsible for making accommodations for workers covered by the Americans with Disabilities Act, says Carolyn Rashby, an associate with Miller Law Group in San Francisco.

“Oftentimes it’s both, and you have to work out with the temp agency as to who’s responsible for what,” she says.

Small employers should be aware that bringing in temporary workers could inadvertently increase their employee count to subject them to laws imposed on firms with 50 or more workers, such as the Family and Medical Leave Act, Rashby says.

One advantage of staffing agencies is they generally pay workers’ compensation premiums for the worker, which provides the employer with liability protection if the worker is injured.

But employers still should adequately train temporary workers, because a staffing agency’s increased workers’ comp costs ultimately will be passed on to the employer, says Bruce Hockman, Philadelphia-based workers’ compensation practice leader for Towers Watson & Co.

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The Lilly Ledbetter Fair Pay Act of 2009 has kept lawsuits alive that otherwise would have been dismissed and revived others, but it has not generated the significant increase in litigation that some observers had feared.

Furthermore, federal courts generally have been conservative in interpreting the law, observers say.

However, the legislation has generated concern about the adequacy of employers’ document retention policies.

President Barack Obama signed the law on January 27, 2009, with great fanfare, as one of his first acts in office. The law says that every paycheck resulting from a previous discriminatory pay decision constitutes a violation of Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990 and the Rehabilitation Act of 1973.

The fair-pay law reversed the U.S. Supreme Court’s 2007 ruling in Lilly Ledbetter v. Goodyear Tire & Rubber Co. Inc. Concerns that the law would result in a flood of litigation have proved to be unfounded, observers say.

“The sky hasn’t fallen,” says Martha J. Zackin, of counsel with law firm Mintz Levin Cohn Ferris Glovsky & Popeo in Boston.

“Some people got more excited” than the situation justified, says Thomas H. Christopher, a partner with Kilpatrick Stockton in Atlanta. The legislation, he says, applies only to a very limited situation and those kinds of situations come up sometimes in the courts, “but not as much as I think some people would think.”

C.R. Wright, a partner with Fisher & Phillips in Atlanta, says the provision that plaintiffs can recover only two years of back pay if they prevail may have had a dampening effect.

“I think that the limited remedy, in terms of damages, has been one reason there hasn’t been a flood of new cases,” he says. “While a person can go back more years than that to point to what they allege to have been the discriminatory conduct, they still can only recover back pay for a two-year period under the statute.”

The law, however, has kept some cases alive and revived others.

“The courts are following correctly the language of the statute for the most part, but that is opening the door for a lot of plaintiffs who would not have been allowed to go forward because their claims are time-barred,” says Christina L. Lewis, an associate with Hinckley, Allen & Snyder in Boston.

The Supreme Court’s ruling in Ledbetter limited plaintiffs to filing a complaint within 180 days of an alleged discriminatory act. The Ledbetter law gives plaintiffs up to 300 days to file a complaint, depending on their state, from the time each paycheck that is based on a discriminatory decision is issued.

Since the law’s enactment, subsequent rulings on the issue have included the September 2009 ruling in Mary Lou Mikula v. Allegheny County of Pennsylvania, in which the 3rd U.S. Circuit Court of Appeals in Philadelphia reversed its own decision and held that the plaintiff could proceed with her claim on the basis of the Ledbetter law.

Reviving a case does not necessarily mean the plaintiff will prevail, “but it means [plaintiffs] now have a shot at it, which certainly adds a cost both financial and managerial to the employer who now has to go back and try to figure out what happened” many years earlier, Mintz Levin’s Zackin says.

Allegations of Ledbetter law violations have been added to ongoing cases, and so defense attorneys are “suddenly faced with a supplementary brief to address the [Ledbetter] Fair Pay Act,” says Philip K. Miles III, an associate with McQuaide Blasko, a law firm in State College, Pennsylvania.

“It’s one more defense that falls by the wayside for defendants’ counsel and one more issue that has to be dealt with in a lot of these cases,” says Mark W. Batten, a partner with law firm Proskauer Rose in Boston. Batten has studied the 47 federal court rulings interpreting the law.

“The pattern that we’re seeing is that the courts are applying the act as it was written, but no more broadly; so where there is a compensation claim or a claim that is closely tied to a compensation claim, like denial of tenure, or a denial for promotion, the courts are holding that the passage of time is not a bar to those cases,” Batten says. “But the fears of some that the act might be applied more broadly, either to statutes other than those listed in the act or, more importantly … might be applied to discrimination claims that are not closely connected with compensation, has not materialized.”

Zackin agreed that the act’s applicability “has been somewhat limited by the courts in the last year.”

For instance, “It’s been clear that the act doesn’t apply to pension benefits.” If a worker has retired, he cannot claim he is receiving a lower pension because of a promotion denied during his active career, Zackin says.

Still, she warned, there is always the possibility of “outlier” decisions that expand employers’ potential liabilities. “You never now what the courts are going to do, unfortunately for employers.”

The legislation remains a source of concern for employers, says Miles. It is difficult to “support your side of the story when you may not have the people or the documentation to support your side of the argument,” he says.

“I would definitely say it’s still an issue for employers and it’s really going to be an ongoing issue. … It’s something they’re really going to have to continuously prepare for by creating and maintaining documentation,” Miles says.

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As concerns grow about the prevalence of child pornography on the Internet, some observers warn that employers can be held liable for employees who view this material using company computers.

Given the ready availability of child pornography on the Internet, employers’ liability exposures are growing, the observers say.

“It’s a far-reaching issue” that behooves employers “to undertake even more vigilance than they have been advised to do so in the past,” says Bernard E. Jacques, a partner with law firm Pepe & Hazard in Hartford, Connecticut. “Fortunately, very few employees use the employer’s equipment to access illegal sites. But when they do, the employer faces substantial liability.”

Sherrie Travis, of law firm Sherrie Travis & Associates in Chicago, says the potential for lawsuits on this issue is relatively small, but just one case “can mean millions of dollars” in liability damages, so “it’s something you have to pay attention to.”

According to the U.S. Department of Justice, child pornography trafficking was almost eradicated by the mid-1980s, but then the Internet changed things dramatically. “The technological ease, lack of expense, and anonymity in obtaining and distributing child pornography has resulted in an explosion in the availability, accessibility and volume of child pornography,” according to the Justice Department.

It is likely that many individuals who view child pornography do so at work “because that’s where they are all day,” says Todd J. Shill, an attorney with Rhoads & Sinon in Harrisburg, Pennsylvania.

Employers can be held liable for negligent supervision or retention of such workers, in addition to failure to act if they discover an individual has been viewing pornography and do nothing, say observers. In addition, such material can provide plaintiff attorneys with powerful evidence in hostile work environment suits.

This is “such a dramatic and emotional issue, a judge as well as a jury are much more likely to search to find a remedy and for someone to blame,” Travis says. Because “the situation … tugs at everyone’s heartstrings, I think the employer who provides the equipment used to do this kind of thing can be swept up in that kind of emotionalism.”

It is illegal to download child pornography from a Web site under federal law, which calls for a mandatory minimum prison term of five years for receipt, possession or distribution of child pornography. The production or sale of child pornography carries a harsher prison sentence.

Seven states—Arkansas, Illinois, Missouri, North Carolina, Oklahoma, South Carolina and South Dakota—require information technology workers to report the discovery of child pornography to law enforcement officials, according to Gina M. Smith, a partner with Ballard Spahr in Philadelphia, citing information from the National Conference of State Legislatures. Failure to report such information could result in a fine or jail time.

Employees who uncover such pornography during an investigation or decide to destroy it “because they’re horrified by it and they think it’s disgusting” could face criminal charges “for having reviewed or possessed child porn, or for obstruction of justice,” says Philip L. Gordon, an attorney shareholder and chair of the privacy and data protection practice group with Littler Mendelson in Denver. The best course of action upon finding such images is to call law enforcement as soon as possible, he says.

Gordon says companies may be reluctant to report the discovery of child porn if the suspect is a high-ranking executive and the company wants to avoid embarrassment, but “the company itself is facing potential exposure to criminal prosecution for not reporting someone who’s engaging in child pornography using the company’s electronic resources,” Gordon says.

Many observers say a significant case in this area is Jane Doe v. XYC Corp. In that 2005 decision, the Appellate Division of New Jersey Superior Court held that an employer may have been negligent for failing to act when it learned an employee was downloading pornography. The suit was filed by the ex-wife of an employee who allegedly sent pornographic pictures of his stepdaughter to a child porn site. According to reports, the case was settled for an undisclosed amount. Attorneys could not be reached for comment.

Unrelated to the civil suit brought by the ex-wife, the man was arrested in connection with uploading pictures of his stepdaughter.

“The reasoning of the New Jersey court suggests that employers in all states can be held liable for an employee’s viewing child pornography,” Jacques says. The court based its decision on the common law of negligence, which “requires all of us to take reasonable steps to prevent harm to others.”

Others disagree about the case’s significance.

“A lot of people think that the case is going to be interpreted very, very narrowly,” says Robert J. Aalberts, a professor of legal studies at the University of Nevada, Las Vegas. “But it does indicate you’ve got to be careful and always exercise prudence.”

Ann E. Zerbe, a shareholder with York, Pennsylvania-based CGA Law Firm, says she expects more claims in this area in the future “just because the technology is constantly evolving and expanding.”

A company policy covering this is important, say observers. The policy should “flat-out ban any illegal use as well as inappropriate use” of computers, Jacques says.

Smith says the policy should establish that there is “no reasonable expectation of privacy when you’re using a company computer,” and spell out disciplinary actions for violating the policy.

“The courts are loath to hold employers responsible” if they have used such means as an annual training seminar to make it clear to employees what is considered inappropriate behavior, says Jonathan D. Bick, of counsel with law firm Brach Eichler in Roseland, New Jersey.

Observers say software is available to prevent access to child pornography sites, including programs that recognize keywords or those that measure the amount of skin shown in photographs.

Companies should ensure that any policy that is developed is followed, says William P. Perkins, a partner with Seyfarth Shaw in New York. “The best evidence for a plaintiff attorney is for a company to have a policy that’s not followed.”

An Internet usage policy that is not followed is almost as bad as having no policy at all, he says.

Also, “be very careful to monitor your employees in general,” Aalberts says. “You don’t have to be crazy about it, but just be aware that this sort of thing can go on in the workplace” and look into it “if there are any hints it is going on.”