Corporate Law

by Stephen F. Aton

The United States Supreme Court is, of course, the highest court in the land, and its decisions are necessarily of interest to the business community. Some of the recent court decisions that may have an impact on your business are outlined below.

In Burlington Industries vs. Ellerth, a company supervisor sexually harassed a female employee by making threats to deny her job benefits. The threats were never carried out, but the employee nonetheless quit her job.

The woman never told anyone in the company about the threats while she was working there. Although the company had a policy against sexual discrimination, the court held that the supervisor created a "hostile environment" and that the employee could recover from the company without proving the company was negligent in allowing the situation.

As a result, employers are not protected from liability just because they are unaware. Several justices thought the employee should have to show negligence on the part of the employer, but the majority held otherwise.

In Quality King vs. L'Anza, L'Anza was a California manufacturer of hair care products that sold only to licensed distributors, who, in turn, distributed only to authorized retailers. One customer outside the United States, without L'Anza's permission, sold L'Anza's products back into the country to an unauthorized distributor.

The product sold for much less overseas so that it could still be shipped to the United States and sold at a profit. The court ruled that copyright law does not protect companies that export their products from having them shipped back into the country by another firm for sale in the United States.

In U.S. vs. Best Foods, the government took action under the environmental laws of CERCLA, the Comprehensive Environmental Response, Compensation and Liability Act, against the parent company of a defunct subsidiary for the costs of cleaning up oil waste.

Section 107(a) authorized suit against "any person who at the time of disposal of any hazardous substance owned or operated any facility."

The Sixth Circuit Court held that a parent corporation would not be liable for the subsidiaries' toxic cleanup, but the Supreme Court overruled it by stating that, particularly when the parent company is directly responsible for the operation of the site, the parent could be liable.

Just what constitutes "operating" a facility is at issue. Joint boards of the two companies may be enough to impose liability. A parent corporation cannot shield its assets by merely setting up a subsidiary to accomplish wrongful acts.

The Court in Oubre vs. Entergy reversed a Fifth Circuit Court decision in holding that a worker does not have to return severance pay received from an employer in order to sue for age discrimination.

The Fifth Circuit was apparently troubled by the inconsistency in an employee taking severance pay to leave a job and then claiming discrimination in leaving. The Supreme Court, nonetheless, did not require return of the money for the employee to bring an action.

Finally, another workplace harassment suit was decided by the court in Faragher vs. City of Boca Raton. The court ruled that the city of Boca Raton may be liable for a male employee's harassment of a female employee, though she did not complain to higher management.

As a result the employer is vicariously liable for the harassment, although the court will consider the reasonableness of the employer's actions.

(Stephen F. Aton is a Springfield attorney practicing in the areas of corporate law and taxation, and estate planning.)

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