In a series of recent cases, New Jersey's courts have continued the trend of expanding the scope of potential liability that employers face. Specifically, a number of courts have extended the protection of employment discrimination statutes traditionally reserved for claims by "employees" to encompass claims by independent contractors and students, thus creating new classes of plaintiffs.
For example, In D'Annunzio v. Prudential Insurance Company of America, a case decided in February 2006, the New Jersey Appellate Division ruled that the New Jersey Conscientious Employee Protection Act (CEPA), a statute that protects whistleblowing employees against retaliation, can also be utilized by independent contractors. In D'Annunzio , a licensed chiropractor who contracted to review medical records for Prudential's Personal Injury Protection Department filed suit against Prudential and several of its officers and directors alleging that he was terminated in violation of CEPA in retaliation for his complaints that Prudential took part in unethical and illegal practices. Prudential moved for summary judgment claiming that D'Annunzio was not eligible to commence a CEPA action because he was an independent contractor and not an employee. The Appellate Division reversed the trial court's grant of summary judgment to Prudential and held that CEPA's definition of "employee" may be construed to include individuals who might be classified at common law as independent contractors. The Appellate Division explained that the scope of who was covered as an "employee" under CEPA should turn on the employer's "control and direction" of the contractor and not solely on whether the contractor entered into a traditional employer/employee relationship with the employer.
In expanding the scope of CEPA to include independent contractors, the D'Annunzio court recognized the recent trend of American companies to include in their workforce large numbers of workers who are either independent contractors or who are not given the benefits normally associated with traditional "employment." Several weeks later, the Appellate Division reaffirmed this holding in Stomel v. City of Camden, ruling that Elliott Stomel, an attorney who contracted to perform legal services as the City of Camden's Public Defender, could sustain a CEPA action against the city. The Stomel court explained that courts should examine the employer's "control" and "direction" of the contractor's work, as well as examine the "relative nature of the work" the contractor performs in determining whether a person characterized as an independent contractor, was an "employee" under CEPA. The Appellate Division found that because Stomel was not free to choose his own clients, was required to submit written reports detailing the duties he performed, and could not be paid until the City Law Department certified that his work was done satisfactorily, Stomel was able to establish that he was an "employee" under CEPA.
These decisions continue the trend toward expanding coverage of New Jersey's discrimination statutes to new classes of plaintiffs. For example, a few years ago in Rubin v. Chilton Memorial Hospital, the New Jersey Appellate Division ruled that medical doctors who had contracted with Chilton Memorial Hospital to provide pathology services could sue for age discrimination under the New Jersey Law Against Discrimination (LAD). In Rubin, the Appellate Division held that Chilton Memorial Hospital could not cancel its existing contract with an independent contractor based solely on age considerations without violating the LAD since the LAD contains a provision making it unlawful to refuse to contract with a person on the basis of age, religion, race, national origin, sex or sexual orientation. Accordingly, the LAD does regulate commercial transactions to the extent a company's actions are motivated, in whole or in part, by an impermissible consideration.
By contrast, in February, the United States Supreme Court, in Domino's Pizza v. McDonald, limited the protection of the Civil Rights Act of 1866, 42 U.S.C. 1981 ("Section 1981"), the federal discrimination statute that prohibits discrimination in the making and enforcement of contracts. In Domino's Pizza, John McDonald, a sole shareholder in a company that contracted with Domino's Pizza for the construction of restaurants, filed a Section 1981 claim, alleging the contract his company entered into was terminated because of his race. The Supreme Court dismissed McDonald's claim and found McDonald had no cause of action under Section 1981 because he was not a party to the contract that was at issue.
Thus, employers in New Jersey need to take appropriate steps to insulate themselves from potential discrimination claims by independent contractors and potentially other contracting parties. Employers should consider extending harassment and discrimination complaint procedures to third-party contractors in an attempt to remediate any claims of discrimination relating to their termination or the non-renewal of their contracts.
Additionally, New Jersey's expansion of its discrimination laws has not been limited to independent contractors. Courts have also expanded the coverage of discrimination laws to protect students from so-called "peer harassment." In L.W. v. Toms River Regional School Board of Education, a case decided late last year, the Appellate Division ruled that a student could bring a LAD claim against a school district for "peer harassment." In Toms River School District, a student who had been subjected to repeated physical assaults and verbal slurs regarding his perceived sexual orientation filed suit under the LAD against the school district. The school district, relying on the analysis of cases brought under Title IX (the federal statue that prevents publicly funded higher educational facilities from engaging in discrimination), argued that it could only be held liable for harassment where it was "deliberately indifferent" to the alleged harassment. The Appellate Division rejected the school district's arguments and found that the school district could be held liable for the harassing behavior of its students. The Appellate Division found that the standards for employer liability for harassment that were first articulated by the New Jersey Supreme Court in Lehman v. Toys R Us, should be applied to a school district. More importantly, the Appellate Division suggested that school districts, like employers, may be required to implement equitable remedies and measures to prevent future instances of peer harassment.
The Appellate Court's ruling was split 2-1, so this issue is likely to be revisited by the New Jersey Supreme Court if appealed. However, given New Jersey's historic trend of expanding discrimination laws, it is likely the Appellate Division's decision will be affirmed. Accordingly, school districts need to take steps similar to employers and ensure that they have appropriate anti-discrimination and anti-harassment policies and complaint procedures.
One question that has been created by these decisions is whether existing EPLI policies would cover such claims since it is unclear whether such plaintiffs would meet the definition of "employee" contained therein. Accordingly, counsel should also be aware of this when reviewing such policies to determine if a rider is necessary for third-party coverage.
Published May 1, 2006.