US Supreme Court stresses "context" in upholding Title VII discrimination case

The US Supreme Court entered a decision today in the matter of Burlington Northern & Santa Fe Railway Co. v. White, a Title VII case regarding its anti-retaliation provisions. Justice Breyer delivered the opinion of the Court:
“Title VII of the Civil Rights Act of 1964 forbids employment discrimination against "any individual" based on that individual's "race, color, religion, sex, or national origin." … A separate section of the Act--its anti-retaliation provision--forbids an employer from "discriminat[ing] against" an employee or job applicant because that individual "opposed any practice" made unlawful by Title VII or "made a charge, testified, assisted, or participated in" a Title VII proceeding or investigation…
We conclude that the anti-retaliation provision does not confine the actions and harms it forbids to those that are related to employment or occur at the workplace. We also conclude that the provision covers those (and only those) employer actions that would have been materially adverse to a reasonable employee or job applicant. In the present context that means that the employer's actions must be harmful to the point that they could well dissuade a reasonable worker from making or supporting a charge of discrimination.”

The Supreme Court upheld a lower court’s award of $43,000 to Ms. White for her troubles (37 day suspension without pay during the Christmas season, et al) after issuing a series of complaints in a non-constructive work environment. That last sentence of the above opinion is very telling, in that the Court unanimously (9-0) establishes the importance of “context” in establishing which employer actions (i.e., those which are “materially adverse to a reasonable employee”) would be deemed harmful, such that they would convince a reasonable worker from making a charge of discrimination.

Employee behavior may effect valuation of employee stock options

Study examines the degree to which employees' early option exercise behavior affects firms' employee stock option valuation estimates.

In contrast to prior research, study shows that employee stock option value estimates differ when exercise rates are modeled as a function of factors such as attainment of performance benchmarks, recent vesting, portfolio value, and employee rank.

Article: "Timing of Employee Stock Option Exercises and the Valuation of Stock Option Expense"

Authors: CHRIS S. ARMSTRONG, Stanford Graduate School of Business
Email: carmstro@stanford.edu
Co-Author: ALAN D. JAGOLINZER, Stanford Graduate School of Business, Email: jagolinzer@stanford.edu
Contact: DAVID F. LARCKER, Stanford Graduate School of Business, Email: Larcker_David@gsb.stanford.edu

Attorney question of the day?

Q: Do employer stock option games (see previous post on this blog) effect the value of employee stock options for litigation purposes?

A: Yes they do.

One key component in the valuation model (Black Scholes or other) is the grant price. If the grant value changes then the value of employee stock option changes. The higher the grant price the lower the intrinsic value of the employee stock option for litigation purposes.

With that in mind, options on employee options, like back dating and spring loading that was discussed in the previous post, provide a unique challenge when valuing for litigation purposes. The solution can be as simple as changing the valuation date and vesting dates in the mathematical model or more involved. Most option on employees by employers are unique to that employer.

Games employers play with stock options

Backdating: setting an options grant data before its approval date so that the exercise price is lower. Results in an option that is immediately in the money.

For example: Consider a company whose stock traded at $2.08 on July 1, $1.56 on July 15, and $2.15 on July 30. A person who started on July 1, 2006 who was granted employee stock options would have a grant price of $2.08 and person who started on July 15 would have a grant price of $2.25. If no back dating, the employee who started on July 15 would at the end of the month have stock options that were worth more (2.25-1.56 vs. 2.25-2.08) than the person who started at the just 15 days prior.

Other option games that employers play:

30-day window/lookback: Like backdating of the employee stock option grant but sets the exercise price to the lowest price in a 30 day window.

Forward-dating: picking a grant date after the approval date and after a falling stock starts to rise.

Spring loading: Setting a grant date to occur shortly before the release of positive news.

Daubert watch: Damages testimony based on history of loss not sufficient

Case: Webb vs. Braswell, Mississippi, Supreme Court


Economic Testimony inadmissible.

Case Summary:

The reviewing court ruled that the testimony was proffered for one purpose, to show damages of lost profits as a result of unplanted crops. The plaintiffs (Webbs) brought this testimony forward without ever establishing that they were profitable. Rather, the Webbs had been farming and operating at a loss in the years prior to the farming year which was the subject of this litigation.

Therefore, the amount of damage allegedly resulting from the unplanted crops was not reasonably ascertainable based on the Webbs' past experience, as the rules required. This being the case, any testimony to prove damage to the Webbs was tenuous at best and failed the reliability prong of the Daubert/McLemore test.

See dauberttracker.com for more details....

One of our own in the news...

It is rare that economists other than the authors of Freakonomics get in the spotlight; but Allan McCausland, an economist unaffliated with lostcompensation.com is a long time and active member in the forensic economics community, was mentioned in the Boston Globe for his testimony in a high profile wrongful death case.

Congratulations Dr. McCausland!

Excerpt:

Testimony puts lost income of slain fisherman at $1.8m
By Shelley Murphy, Globe Staff June 10, 2006

What is one man's life worth? It was a question that came down to money yesterday as an economist testified that Quincy fisherman John McIntyre probably would have earned $1,868,820 over his lifetime, if he hadn't been slain in 1984 by gangsters Stephen ``The Rifleman" Flemmi and, allegedly, James ``Whitey" Bulger.

New Hampshire economist Allan Stuart McCausland testified in US District Court in Boston in a $50 million wrongful death suit that McIntyre's mother, Emily, and brother, Christopher, have filed against the government, seeking money for their economic loss and for punitive damages based on alleged negligence......

Worklife expectancy for plaintiffs with HIV and AIDS

On a recent listserv post, economists commented on the difficulty associated with estimating the work life expectancy of an HIV+ plaintiff in a wrongful termination case.

The case involved a manufacturing manager person who was fired by the employer after a co-worker informed the company that the plaintiff had contracted HIV. The plaintiff alleges that the employer, once learning of his medical condition, demoted him to a first line supervisor position that required him to perform significantly more physical work. Since the plaintiff could not perform the work because of his illness, he was ultimately fired by the employer.

Possible worklife assumptions: worklife = life expectancy.

While the time between HIV infection and death was estimated to range from eight to 13 years in the 1980's and 1990s, many patients can expect a life expectancy equivalent to that of the general population. Some studies have estimated that the mortality rate from AIDS has fallen by 70% between 1995 and 2001. Some researcher have estimated HIV/AIDS survival rates as high as 91%.

However,from the economic damage perspective, it not clear how many of these years an HIV+ individual will be able to successful work. At the present time there is little longitudinal data to rely on making this determination. The medical opinion of a doctor who specializes in treating HIV and AIDS patients may be the best and most reliable estimate of the HIV+ plaintiff's worklife in this setting.