Authored by Katharine Essick. Ms. Essick is a partner in Sedgwick’s San Francisco office. Click here to contact Ms. Essick.
Originally published by Ms. Essick in the California Employment Law Letter (Vol. 26, No. 21.)
The recent disability discrimination decision in Morgan v. AT&T Communications of California, Inc. (No. H039904, 2016 WL 3944668 (Cal. Ct. App. July 19, 2016)) underscores the need to clearly identify the legal employer of your workers, which may not be limited to the company identified on their W-2s. All documents issued to employees, including handbooks, benefits documents, and disciplinary communications, should clearly and consistently identify the proper employer, as a pair of alleged employers learned when they attempted to dismiss a lawsuit under the Fair Employment and Housing Act (FEHA).
Apparently straightforward case for dismissal
Adolphus Morgan sued two companies in the AT&T corporate family under the FEHA. Morgan, an engineer, took a leave of absence because of work-related stress. When he returned to work, he requested a transfer to a different department in a different location, but his request was denied. He claimed that he was placed on a performance improvement plan (PIP) under a new supervisor, who continued the same pattern of conduct that had caused his work-related stress in the first place.
Morgan took a second leave of absence and filed a workers’ compensation claim. He continued to request a transfer as a reasonable accommodation and submitted a physician’s note supporting his ability to perform the essential functions of his job if he was given a transfer. Instead, he was terminated for failing to return to work after he was cleared by a doctor.
In an action filed in state court, Morgan claimed that AT&T discriminated against him based on his disability (work-related stress). He argued that when he requested reasonable accommodations (a transfer after he returned from disability leave and a continuation of his second disability leave), AT&T failed to engage with him in the required “interactive process” to identify an accommodation, and instead fired him in retaliation for his complaints and accommodation requests.
The AT&T companies asked the trial court to dismiss Morgan’s lawsuit. Among other evidence, they presented documents to show that his job performance was unsatisfactory and he was fired because he failed to return to work from a nine-month discretionary leave even though his physician certified that he had no work restrictions. But the AT&T companies also asserted that neither of them was Morgan’s employer, and neither was therefore a proper defendant to his lawsuit.
The companies claimed that Morgan’s true employer was Pacific Bell. In support of their request for dismissal, each AT&T company submitted a declaration from a current employee who stated that his or her employer was a separate corporate entity from Pacific Bell, was never a parent company of Pacific Bell, never employed Morgan, and “played no role in any employment decisions regarding” him. The AT&T companies presented other evidence in an attempt to establish that Pacific Bell was Morgan’s true employer and the only proper defendant. For instance, Morgan testified at his deposition that he understood when he was hired in 1996 that he would be working for Pacific Bell when he saw his employment application, which had a Pacific Bell logo above the words “A Pacific Telesis Company.” When he accessed his employer’s intranet and printed a description of an available manager position in support of his request for a transfer, the notice stated the opening was with “Company: Pacific Bell Telephone.” Finally, the companies pointed to Morgan’s W-2 forms, which identified “Pacific Bell Telephone Company” as his employer.
The trial court dismissed Morgan’s lawsuit against AT&T, finding he was unable to establish that he had been an employee of either AT&T company he sued. In making its ruling, the trial court relied on the W-2s that identified Pacific Bell as the employer as well as letters indicating that Pacific Bell was merely doing business as “AT&T California,” which Morgan hadn’t named as a defendant. The trial court found that the use of a fictitious name (“AT&T California”) didn’t create a separate legal entity, and even if Morgan had evidence that the defendants were corporate parents of Pacific Bell, he hadn’t submitted any evidence that they had enough control over Pacific Bell to allow them to be sued in its stead. Morgan appealed.
Confusion in the documents
Because the trial court determined that Morgan was unable to present a single fact that might persuade a jury that AT&T was his employer, the court of appeal engaged in the usual process of reviewing the entire record to see if there was any evidence that could, if believed, prove that either AT&T company was Morgan’s employer and therefore a proper defendant.
Since many documents were submitted to establish Morgan’s poor performance and detail the communications with him about his leave of absence, the record was rife with corporate documents that suggested an “AT&T” company was his employer. Six letters written by a member of the employee relations department that dealt with his disability leave and eventual termination identified his employer as “AT&T California (Pacific Bell Telephone Company).” AT&T also submitted his performance reviews, which identified different “AT&T” companies throughout the documents. Moreover, the PIPs that AT&T applied to Morgan when he returned from his first disability leave were titled “AT&T Performance Plans.” A final performance review that incorporated the PIPs was titled “AT&T Achievement and Development (2008)” and contained an AT&T logo.
For his part, Morgan didn’t dispute that he was initially hired by Pacific Bell, but he claimed that he worked for AT&T as well as “SBC.” He submitted to the trial court 41 documents that he received from the AT&T companies or their attorneys during the course of his employment. Among them were performance reviews with “AT&T” captions, documents that referred to “AT&T” goals, and forms acknowledging review of “AT&T” courses and training materials. After he filed a workers’ comp claim based on his work-related stress, an area manager who completed the “Employer” section of the claim form identified Morgan’s employer as “AT&T.” Correspondence about the claim came from the “AT&T Integrated Disability Service Center.” A letter explained that he might be entitled to benefits under either the Pacific Telesis disability benefits plan or the AT&T disability income plan. At his deposition, Morgan testified: “At the time I left AT&T, they wasn’t sure who was really in charge of the company. It was a longstanding joke between people who work there. We started out SBC, went to AT&T. . . . [It] all depends [on] who you talk to on what day.”
Closing the door to an early exit
The FEHA doesn’t define “employer.” The courts will examine whether the company that is alleged to be the employer has day-to-day authority over matters such
as hiring, firing, directing, supervising, and disciplining the employee. The courts have identified many other relevant considerations, although the most important factor in identifying the employer is the extent to which it has the right to control the means and manner of the worker’s performance.
Because the identification of the employer is so fact intensive, it’s difficult to secure an early dismissal of a lawsuit rather than being forced to prove a defense at
trial. Under FEHA, any person or entity that is identified as the employer on an employee’s W-2 forms is presumed to be the employer. Pacific Bell, not AT&T, was identified as the employer on the W-2 forms issued to Morgan. Nevertheless, it was possible for him to overcome the presumption that Pacific Bell was his employer by presenting other evidence. The trial court found that multiple documents submitted by both Morgan and AT&T at least raised a question about whether AT&T, not Pacific Bell, was his employer.
The court of appeal also noted that the AT&T companies’ declarations didn’t address the employment status issues in any meaningful way. For example, although
there was evidence that “AT&T California” was another name for Pacific Bell, the companies failed to explain the relationship between them and “AT&T California,” and they didn’t deny that one of them was also known as “AT&T California.” And although the companies denied that they were the same entity as Pacific Bell, they didn’t deny that they were the same as the various “AT&T” entities identified in the documents reviewing Morgan’s work performance. They didn’t explain which manifestation of AT&T reviewed Morgan’s performance, the relationship between them and the AT&T entities identified in the performance review forms, or why his performance for Pacific Bell was reviewed on AT&T forms that made no reference to Pacific Bell.
The companies’ declarations also didn’t discuss any of the factors that identify a true employer—including the right of control. Instead, they merely denied involvement in any employment decisions involving Morgan. The companies didn’t deny that they established the disability leave program under which he was fired or that his work performance was reviewed under their standards. All they offered were legal conclusions from employees who weren’t legal experts that the companies weren’t Morgan’s “employers” under FEHA. That wasn’t enough to entitle them to a dismissal of the case under FEHA, especially since “AT&T” was identified throughout their employment documents. In other words, the court of appeal explained, the corporate documents revealed “unresolved questions about who employed [Morgan] when he was terminated.” The court therefore reversed the judgment in favor of the AT&T companies and sent the case back to the trial court.
A company that isn’t the true employer of an employee under FEHA is entitled to a judgment in its favor in a lawsuit. Many companies operate through a series
of interrelated parents and subsidiaries, often with common management, a single HR department, and identical policies. If the companies don’t clearly identify the specific employer and maintain separate management of the day-to-day activities of employees, then it’s more likely that multiple entities will be named in a lawsuit by a former employee. Employers that operate through multiple entities must be sure to accurately and clearly identify the proper employer in all employee documents, including every form, letter, and handbook.