A complaint has been filed with the EEOC against Mills Paper Company due to the termination of an employee, John Carpenter.1 This case study examines the reasons behind Carpenter’s termination, evaluates how to best deal with the resultant claim that has been filed, and presents solutions to the underlying organizational problems.
In the short term, Mills Paper Company and CFO Lance Amato are faced with a complaint filed by John Carpenter with the local Equal Employment Opportunity Commission (EEOC) office charging age discrimination, unfair performance appraisal, and negligent and intentional infliction of emotional distress. Amato and the company must decide how best to respond to these charges.
In the long term, Mills Paper Company needs to re-evaluate its methods of performance evaluation and their implementation. Currently, they are using management by objectives (MBO) for their managerial staff.
Critical Analysis of Case Data
Carpenter’s complaint filed with the EEOC has three components: age discrimination, unfair performance appraisal, and negligent and intentional infliction of emotional distress. Each of these three components must be analyzed in terms of the evidence, legal requirements, and potential ramifications before possible responses to the charges can be evaluated.
In regards to all three components, it is essential to keep in mind that the EEOC has been granted many investigative powers. They have the right to enter establishments, inspect and copy records, interview employees, and supervise the payment of sums owed.2 The records that the EEOC requires employers to maintain are presented as Table 1.
Table 1: Required Records3
1. For each employee: name, address, date of birth, occupation, salary, weekly compensation (to be maintained for a period of three years)
2. Applications and other inquiries about employment (retained for 1 year)
3. Records of promotions, demotions, transfers, layoffs, recalls, discharges (1 year)
4. Tests connected to personnel actions (1 year)
5. Physical examinations connected to personnel actions (1 year)
6. Descriptions of employee benefit plans (1 year)
Carpenter was hired two years ago at the age of 56. As such, he is covered by the Age Discrimination in Employment Act (ADEA) of 1967. This act applies to individuals 40 years of age or older who are employed, were employed, or are applying for employment in an organization that has 20 or more employees.4
Table 2 presents the three different ways in which an ADEA case can be proven.
Table 2: Proof Required for an ADEA Case5
1. Direct evidence of age discrimination.
2. Demonstration of a pattern of discrimination.
3. Circumstantial evidence.
Of these three, the third would apply to Mills Paper Company as there has been no evidence presented establishing either of the first two conditions. In order to meet the circumstantial evidence requirement, employees must meet the following four conditions presented as Table 3.
Table 3: Conditions for Circumstantial Evidence Requirement6
1. Member of protected age group.
2. Qualified to perform the job.
3. Subject to an adverse employment action (such as firing).
4. Replaced by someone outside the protected age group.
Carpenter could easily establish his membership in the protected age group as well as his having been subject to an adverse employment action. His performance reviews, discussed below, indicate that it is questionable whether Carpenter was capable of performing his job. It is unclear whether the fourth condition has been met, as no information concerning Carpenter’s replacement was provided in the case description.
Mills Paper Company uses MBO for its managerial staff. During his tenure with Mills Paper Company, Carpenter conferred with his managers on numerous occasions as presented in Table 4.
Table 4: Record of Carpenter’s Meetings with Mangers
1. Within one week after his hiring, Carpenter met with Henry Castagnera (Carpenter’s first manager). They agreed on the objectives and performance metrics for the position.
2. During his first quarter of employment, Carpenter received a poor performance rating from Castagnera. Several other managers and the company president also expressed their disappointment in his performance. At the same time, Carpenter received a 7% salary increase.
3. Following a company reorganization, Carpenter received a new manager, Bob Crane. Crane “prepared a set of objectives for Carpenter.”
4. At his mid-year review, Carpenter received a “needs improvement rating.”
5. Three months later, Carpenter had not made any significant improvements. Crane suggested several ways in which Carpenter could improve his performance.
6. Carpenter did not meet these objectives and was demoted from division controller to financial analyst. This change in title came with reduced responsibilities, but Carpenter’s salary remained the same.
7. Amato gave Carpenter the option of being demoted to general accountant or being terminated for inability to perform the job. Carpenter chose to be demoted, taking a pay cut from $65,000 to $61,000.
8. A “set of performance objectives were developed for him” in his new position as general accountant.
9. Carpenter did not meet his objectives, and Amato decided to terminate him.
In several respects, the MBO process utilized at Mills Paper Company provided Carpenter with much valuable feedback about his job performance and areas for performance. He was given numerous performance evaluations at regularly spaced intervals. He was provided with concrete suggestions for improving his performance: for example, to develop and issue a new forecasting form. Prior to being terminated, he had already been offered the option of being terminated or being demoted. Carpenter, therefore, had ample warning that his superiors were not pleased with his performance.
In regards to legal issues, for the purposes of the EEOC, performance appraisals are “tests”7 and are therefore among the documents that the EEOC has the power to examine while investigating a case. These tests must be administered without regard to age.8 In order to reduce the risk of legal challenges to the performance appraisal system, Grote recommends nine procedures based on the Civil Service Reform Act of 1978. These procedures are presented in Table 5.
Table 5: Risk Reduction in Performance Appraisal Systems9
1. Companies must create performance appraisal procedures.
2. These appraisal systems should “encourage employee participation in establishing performance standards,” and these standards should be based on a job analysis.
3. A job’s critical elements must be put in writing.
4. Employees must be made aware of these critical elements before the appraisal.
5. The performance appraisal must be based entirely on the employee’s actual performance, and not on the employee’s performance in comparison with other employees.
6. Appraisals must be held once a year, and they must be documented in writing.
7. Appraisals must include information necessary for “making decisions regarding the ‘training, rewarding, reassigning, promotion, reducing in grade, retaining and removing employees.’”
8. Individuals who create / conduct appraisals must be trained by the company in the proper procedures.
9. The company’s performance appraisal system must be “periodically evaluated to ensure its effectiveness.”
Of these nine guidelines, Mills Paper Company clearly fulfills six. The implementation of the MBO system in this case did not clearly “encourage employee participation.” No information was presented in the case about whether the managerial staff at Mills had been trained in the proper implementation of the MBO process, nor whether the company periodically evaluated its performance appraisal system. The details of the case, however, indicate that there were several problems with how Mills Paper Company employed the MBO process.
First, MBO is “a process whereby the superior and subordinate managers of an organization jointly identify its common goals.”10 The keyword in this phrase is “jointly,” as it is thought that by having employees participate in their own objective-setting they will be more motivated to achieve these goals.11 From the wording of the case history, it appears that the only time Carpenter was actually engaged in the objective-setting process was during his initial meeting with his Castagnera. In all other instances, his objectives were set for him by his manager: Crane “prepared a set of objectives for Carpenter,” and later, a “set of performance objectives were developed for him.”
Second, the objectives and the performance evaluation should emphasize quantitative, measurable goals.12 Comments from Carpenter’s performance appraisals do not constitute clear documentation; rather, they are vague, anecdotal evidence. Examples of this type of comment include “information furnished not consistently accurate,” “managers not satisfied with the financial guidance provided,” “lack of solid response and follow through on specific requests for assistance,” and “organization concerning financial aspects of strategy preparation and budgeting was not good.”
A final weakness in the performance evaluation process in this case is that there were several instances of inconsistencies in how Carpenter was financially compensated or penalized for his performance. In one instance, Carpenter was awarded a pay raise after receiving a poor performance evaluation. In another instance, a demotion was not accompanied by a salary decrease.
Negligent and Intentional Infliction of Emotional Distress
In order to demonstrate Intentional Infliction of Emotional Distress, the employee must demonstrate all four of the elements presented in Table 6.
Table 6: Demonstration of Intentional Infliction of Emotional Distress13
1. “Extreme and outrageous conduct” by the employer.
2. Intension by the employer to cause the employee to suffer extreme emotional distress.
3. Suffering of severe or extreme emotional distress.
4. Distress was suffered as the direct result of the employer’s conduct.
With the exception of the second requirement, the requirements for Negligent Infliction of Emotional Distress are the same.
As racial insults and sex discrimination are viable claims for Intentional Infliction of Emotional Distress,14 age discrimination cases, as they also fall under the bounds of the EEOC, would also be viable. In this case, monetary awards for emotional distress could be awarded if Mills Paper Company is found to have engaged in age discrimination.
Alternatives – Short Term Problem
In regards to the short term issue of the EEOC complaint, Mills Paper Company has two options: settle out of court or allow the case to be heard in court. Factors to be considered in deciding between these two courses of action include the strength of the claims and the monetary compensation that could be awarded to Carpenter.
Strength of Claims
In regards to age discrimination, Carpenter clearly meets two of the four conditions necessary for the establishment of an instance of age discrimination (protected age group and adverse employment action). Though it is not clear from the case whether Carpenter’s position has already been filled, it cannot be recommended that the company hire someone on the sole basis of their membership in the protected age group as this practice would discriminate against younger candidates on the basis of age. The primary weakness of Carpenter’s claim is that his numerous negative performance evaluations indicate that he is not qualified to perform his job. He does, however, have more than the necessary qualifications and experience.
With regards to the performance appraisal system, there is no evidence that Mills Paper Company applied the system in such a way as to discriminate against employees of certain age brackets as all managerial staff were appraised in the same way. There are, however, some weaknesses in their implementation of the MBO process that should be considered as part of a long-term plan.
There is no evidence in the case that Carpenter was subject to either intentional or negligent infliction of emotional distress. Firing, in and of itself, does not meet the necessary conditions for a successful claim as it is not considered “extreme and outrageous conduct.”15
The potential monetary rewards in a successful suit are substantial, including lost wages, liquidated damages, lost future wages (“front pay”), and attorney’s fees.16 As such, the possible courses of action must be weighed carefully.
Alternatives – Long Term Problem
In the long term, Mills Paper Company must evaluate its performance appraisal system. The company has two possible courses of action, the strengths of which must be evaluated in terms of cost of implementation and potential impact on performance. These two possibilities are to alter the company’s appraisal system to employ total quality management (TQM) principles or to rework the company’s implementation of MBO.
Cost of Implementation
Switching to TQM would necessitate a radical shift in company policy, retraining of all managerial staff, rewriting of all company appraisal forms, and the reappraisal of all current employees.
Reworking the company’s implementation of MBO would require far fewer resources to accomplish. Managerial staff would need to undergo some additional training and would need to meet with their employees to ensure that both parties are involved in the current set of objectives.
Potential Impact on Performance
The extra work load associated with a change to TQM could cause immediate feelings of resentment and hostility due to the increased work load. However, TQM’s emphasis on collaboration, empowerment, teamwork, and continuous improvement as opposed to individual performance and quantitative goals17 could lead to increased productivity and success in the long term.
The reworking of the MBO system will also necessitate an increased work load, though much less so than the first option, which could lead to employee hostility. However, the MBO system, when correctly implemented can be a highly effective system that increases company production.18
With regards to the short term issue of the EEOC complaint, it is recommended that the company settle out of court. Juries seem to typically side with the plaintiff, and Spero remarks that “it is desirable for employers to avoid having juries determine the wisdom of their management decisions.”19 Potential financial losses to the company would be greatly reduced by settling out of court.
With regards to the long term issue of the performance appraisal system, it is recommended that the company rework its implementation of the MBO system as it will increase company productivity and its potential cost is substantially less than implementing TQM. Guidelines for the reworking of the MBO process are presented in the accompanying action plan.
Responsible Person (s)
Identify the company’s long-term strategic goals
Executives and managers
Identification of the company’s long-term goals will allow each employee’s position to be evaluated in terms of the large-scale organization.
Set up a reward system tied to performance.
Aug. 15, 2009
Executives and managers
Rewards can provide additional motivation for increased performance.
Training sessions on how to correctly implement MBO
Sept. 15, 2009
Executives and managers
Training sessions will ensure that MBO principles are applied consistently throughout the organization.
Superiors and subordinates collaboratively discuss objectives.
Jan. 15, 2010
By encouraging employee participation in goal setting, employees will be more motivated to achieve their objectives and will better understand how their position contributes to the ultimate success of the company. The reward system should be presented at this time as should the time table for subsequent performance reviews.
Review the performance of the organization.
Jan. 15, 2010
Executives and managers
The performance of the company as a whole should be periodically reviewed and the long-term vision should be re-assessed.
Bachman, Sherrie. “Performance Appraisals.” Bachman Global Associates. 2003. Retrieved
July 7, 2009 from http://www.bachmannglobal.com/articles/Performance%20Appraisals.pdf.
Dinesh, David and Palmer, Elaine. “Management by Objectives and the Balanced Scorecard:
Will Rome Fall Again?” Management Decision 36 (1998) 6: 363-369.
Greenwood, Ronald G. “Management by Objectives: As Developed by Peter Drucker, Assisted
by Harold Smiddy.” The Academy of Management Review 6 (April 1981) no. 2: 225-230. Retrieved July 2, 2009 from http://www.jstor.org/stable/257878.
Grote, Richard C. The Complete Guide to Performance Appraisal. New York: AMACOM, 1996.
The Legal Aid Society of San Francisco. “Intentional Infliction of Emotional Distress in the
Workplace.” Retrieved July 8, 2009 from http://www.las-elc.org/IntentInflictionEmotDistress.pdf.
Nkomo, Stella M., Fottler, Myron D., and McAfee, R. Bruce. Human Resource Management
Applications. Boston: South-Western College Publishing, 2007.
Spero, Donald J. “Age Discrimination in Employment Act.” Retrieved July 5, 2009 from
The U.S. Equal Employment Opportunity Commission. “Age Discrimination.” Updated March
11, 2009. Retrieved July 5, 2009 from http://www.eeoc.gov/types/age.html.
The U.S. Equal Employment Opportunity Commission. “Fact Sheet on Employment Tests and
Selection Procedures.” Updated June 23, 2008. Retrieved July 6, 2009 from http://www.eeoc.gov/policy/docs/factemployment_procedures.html.