Japanese Companies & U.S. Employment Law Liability: How to Avoid Court & Stay Out of the Headlines

September 13, 2011

Bill Gilbert
, Vice President and General Manager - Human Resources, Canon U.S.A., Inc.
Gerald Hathaway, Shareholder, New York, Co-chair, Business Restructuring Practice Group, Littler Mendelson, P.C.
Barbara Hoey, Shareholder, New York and a Member of the Jury Trial Group, Littler Mendelson, P.C.

Philip Berkowitz
, Shareholder, New York, US Practice Group Co-Leader, International Employment Law Practice Group, Littler Mendelson, P.C.

A panel of employment law and human resources specialists visited Japan Society to discuss how Japanese companies can navigate the complexities of U.S. laws on employment discrimination.

"These issues aren't easy for anybody," American firms included, said Phil Berkowitz of Littler Mendelson in New York. The iconic American company Coca-Cola paid $192 million in 2001 to settle a class action brought by African-American employees, the largest discrimination settlement in history. In addition to cash payments, the settlement required monitoring of Coke's human resources practices by a court-supervised task force.

More recently, high-profile cases have been brought against Mitsui, alleging discrimination against American employees and in favor of rotating employees, and against Toshiba America, claiming discrimination against women.

"Japanese companies have been and continue to be attractive targets for plaintiffs and plaintiffs' lawyers who try to exploit the differences in customs and so forth between our societies," Mr. Berkowitz said. Local staff of a Japanese company doing business in the U.S. may raise concerns when rotating staff get housing allowances and other special benefits, or when important meetings are conducted in Japanese and important documents are not translated into English, or when salaries and bonuses for rotating staff are calculated on the basis of a different, seemingly secret formula.

Barbara Hoey, also a partner at Littler, said that business people often exclaim to her, "Well, what do you mean I can't fire him? Aren't you employment at will?"

Considering the common law rule alone, yes, in New York an employer can fire an employee at will, Ms. Hoey said.

But "that is not the law in New York," she quickly warned. "Forget that, because we have legislated ourselves out of employment at will." 

"The misconception is you can fire anyone for any reason or no reason. The reality is you can't. And the risk is if you fire someone for no reason—you don't have a, quote, good reason—and then you go up in front of a jury of Americans who are going to decide this case, they are going to assume that you fired that person for a bad reason, because she was a woman, because he was black, because she was Jewish, because he had a disability." 

"So, I firmly believe that, yes, employment at will is still the law, but you can't do business that way, because if you do you make yourself a target."

"How do you accomplish the goals of your business? You learn to manage your employees in a way that you're working for the betterment of the company—you're always doing what's best for the business." If clients really feel they have to fire an employee, Ms. Hoey said, she doesn't tell them not to do so. But they need to have a good reason, and it can't be for no reason—because "there is no one sitting in this room breathing who cannot fit into" one or more categories that are protected under New York State, federal, and/or New York City employment laws, from race, color, religion, sex and national origin to marital status, gender identity, disability and age.

Federal law forbids discrimination on the basis of age for those 40 and above, but under New York law, the limit is 18. Do 20- and 30-somethings often bring suit claiming age discrimination? Not often, but it does happen. Cases have been brought for example by women who allege they're being discriminated against because they are in their childbearing years.

Gerald Hathaway, also a Littler Mendelson partner, pointed out that New Jersey bars age discrimination against both old and young. In one case, a 25-year-old bank employee who sought to become an officer was told "'you're too young to be an officer of this bank.' ... Had they said, 'You don't have enough experience to be an officer of the bank,' they would have been okay."

This case underscores another point, Ms. Hoey said: "When you're talking to someone about why they are not doing a good job, why they should not get a job, why they're going to be fired from the job—think about this: It's not about the person; it's about the work. It's not about you are too young; it's about you don't have the background. It's not about you are sloppy; it is your work has been sloppy."

This shouldn't be oversimplified, she cautioned. Yet in general, addressing the work rather than the person is "a very effective way of depersonalizing the situation" and presenting the issues as "legitimate job criticisms."

The perception that Japanese companies settle every time they're faced with an employee claim becomes a problem "if you pay off everyone who's walking out the door just because they get a lawyer to write a letter and say, 'I was discriminated against,'" Ms. Hoey continued. "Sometimes there are points where you have to basically fight it or else every single person you fire is going to expect a big payout, and that just is not a reasonable way to do business."

Comments that might be perceived as joking—calling an older employee "grandpa" or "over the hill," referring to new blood, dinosaurs, sweetie, cutie pie—will be considered discriminatory under U.S. law. "Notice that all of these comments—grandpa, over the hill, dinosaurs—what are they about? They're about the person, right? Not about the work."

"What about generational differences in terms of experience? For example, it's often said that younger people know more about social networking. How do you navigate that?" asked Devin Stewart of Japan Society.

Ms. Hoey replied: "You can say to an individual, 'We're not going to put you in charge of the Facebook platform if, like me, you haven't yet figured out how to post a picture on Facebook,' but you might say, 'You can write the blog content,' because I know conceptually how to write the blog content; I just can't post it... Everyone has their function, and I think you just have to determine what the right function is."

"Sometimes suppositions are made" that an older employee "isn't going to be able to work with the computer, with a sophisticated software program, with Facebook—not only are they not going to be able to work with it, we can't even bother trying to teach them, because they're not going to be able to learn a new trick. And those kinds of suppositions in fact are illegal," Mr. Berkowitz added. "And it's not proper to decide that you're not going to put an older worker on a team. Obviously, as Barbara says, you want somebody who knows the area. But there may be times when we're going to have to offer training to somebody if they don't understand something."

Another example, Ms. Hoey said, is an employer assuming that a newlywed woman who's talking about starting a family won't want to do the traveling that would be required by a promotion, and giving the promotion to a man who's not in that position. "That's an assumption, and that's an assumption that equals gender discrimination. You can't make assumptions about people. People need to be offered the opportunities that match their skills, not the opportunities that match their age, race, national origin, gender."

Harassment in the workplace, which is treated as a form of discrimination, can be complicated, Ms. Hoey said. Quid pro quo harassment—"'you need to go out with me or you're not going to get the promotion'"—is "simple, because it's obvious, and it's obviously illegal." Hostile environment harassment isn't as easy to define, but "it's really about two words: respect and professionalism. It's about respecting other people's differences, not making fun of someone because their food smells funny, or why do they take that day off from work, or is that a religious holiday, or how many religious holidays do those people have—what, are you kidding me?" It can be about any protected category, not just gender. And "it's not necessarily abusive conduct; it's just disrespectful conduct." The cases tell us a straightforward lesson: If you get an email with a joke that you wouldn't want displayed in court to a jury, don't circulate it.

What helps is training, not just for staff who've come from your home country but for American staff as well. Training is both a preventive step and a defense in a lawsuit. When it comes to discipline, you need to be consistent and objective, and to document what you tell the employee. "I have tried cases and after the trial have polled juries, and what they will tell you is—particularly with a company of any size, a jury expects you to have [your evidence in] writing," Ms. Hoey said. "Email is fine today—something telling the employee what they did wrong and how to fix it before you then take the next step and discipline them. It's a matter of fairness and proof." 

Another complex area is retaliation, Mr. Hathaway noted. "The courthouse is full of jury verdicts where the jury has found in favor of the company on discrimination, but against the company on retaliation." For a retaliation claim, the employee only has to show that he or she had a reasonable belief that discrimination of some kind has occurred—there's no requirement that the employee prove that discrimination actually took place.

"A problem I have seen representing Japanese companies for over 20 years is a hesitation to confront a bad performer," he said. To avoid conflict, companies manage around the employee, "and so the employee gets carried year to year to year and doesn't really have any serious responsibility."

"If they're not told and you're managing around the employee, the employee feels isolated, and one day looks in the mirror and says, 'Why is this? Maybe it's because I'm black.' Or, 'Maybe it's because I'm old.' Or, 'Maybe it's because I'm not Japanese.' Or, 'Maybe it's because I'm gay.' And then the employee comes forward and says, 'I think there's a problem here in this company. I think I'm being discriminated against.' And now the manager goes wild. The manager thinks, 'I've been carrying this idiot for four years. How dare this person claim discrimination?' And the natural instinct" on the manager's part is to fire the person. "There has been no discrimination whatsoever, but there has been retaliation. That's how retaliation happens in a practical way."

Ms. Hoey said that in the U.S., employees "may not like hearing it, but they do expect to be told what's wrong with their work so they can fix it or not. Or maybe they choose to leave. But if you never tell them something is wrong, then they don't know anything is wrong." The much better practice is to give candid performance evaluations, and put in place performance improvement plans that specify a period of time, perhaps 90 days, for the employee to bring his or her performance up to the standard required. 

If the performance doesn't improve and the company ends up firing the employee, the employee can file a discrimination claim with the federal Equal Employment Opportunity Commission or the state or city human rights agency. That government body will investigate, free of charge. But now there's documentation that the firing was based on performance shortcomings, not on the employee's membership in one or another protected class. 

It's important to keep in mind that the discovery process in the U.S. is "a completely different system from anywhere else in the world," and far more onerous, Mr. Berkowitz noted. Each side "is required to give the other all documents, all information that is relevant to the case or is reasonably likely to lead to the discovery of admissible evidence." There are exceptions for attorney-client privileged communications and for information that's unduly burdensome to collect, "but even then companies may be required to spend hundreds of thousands of dollars, for example," to retrieve emails or other computer records, which may be on servers here or on servers located in Japan.

Once sent, an email can't really be deleted; the author may send it to the trash, but "it's still in the computer, it's still in the server, it's been printed out, the document still exists." With keyword search programs, litigants can search for "the smoking gun, where somebody said something stupid and sent the email, and it becomes the most important piece of evidence in the case."

"If somebody needs an interpreter to interpret the document, they will get that interpreter," he said. "I've seen many occasions with Japanese companies where there might be handwritten notations on a document in Japanese that the person writing it didn't think that somebody might be able to read that, that somebody might actually have access to that. When you turn the documents over, you can't wipe that out."

Under the Friendship Commerce and Navigation Treaty between the U.S. and Japan, Mr. Berkowitz said, a Japanese company can hire a Japanese general manager, or other "treaty trader"—basically an employee with E1 or E2 visa status—without fear of liability under American discrimination laws. But there has been much litigation over the past 20 years about what the treaty does and does not cover. In a recent case brought against Sojitz Corp. of America, the court held that the treaty protected the company from federal discrimination charges, but declined to dismiss a claim under a New York City law prohibiting retaliation

Bill Gilbert, Vice President and General Manager - Human Resources at Canon U.S.A., reflected on the two prevailing approaches to handling rotating staff. Some companies resolve that "'we're going to treat our expatriates exactly the same to the extent possible as the local staff. We're going to give them the same job titles, give them the same performance appraisals, pay them the same—whatever job they're going to be performing in the United States, their base pay, the basis of bonuses, et cetera, will be exactly the same as the local staff member working next to them.'" There may be exceptions for home leave, foreign living allowances and pensions. Rotating employees who perform poorly may be sent home rather than being fired. But in "all other aspects of employment, we'll try to treat them exactly the same as the local [hires] so there can't be this claim of unfair treatment."

Does this work? Not necessarily; for a very small group of disgruntled employees, "there will always be this perception that there are some differences that are being hidden."

The opposite approach maintains all the expatriates as employees of the home office on special assignment, abandoning any attempt to erase or limit distinctions between the home country nationals and the local staff. One advantage of this strategy is that it precludes Japanese expatriates working in the U.S. from arguing that they aren't subject to the parent company's mandatory retirement rules and that U.S. law, under which there's no mandatory retirement age, should apply.

"You have to give this some thought, and you have to have a strategy and an approach and an understanding of you are going to handle this, because if you don't give it any thought you will end up waffling between the two, and that's probably not a good place to be—I think if you have a consistent, understood, defined, communicated approach," it will help prevent such issues, Mr. Gilbert said.

—Katherine Hyde

Topics:  Business

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