Last month, the New Jersey Supreme Court ruled in Robert Smith v. Millville Rescue Squad (MRS) that an employer cannot terminate an employee for separating or divorcing – the processes of which apparently falls under the protected category of marital status under New Jersey’s Law Against Discrimination (LAD).

Operations director and paramedic Robert Smith and his wife both worked for MRS and decided to separate when he began an affair with a squad volunteer. When Smith asked about continued employment, the squad’s CEO, John Redden, said it “All depends on how it shakes down.”

Redden also allegedly told Smith at a later meeting that the CEO would not take the case to the squad’s board if there had been the slightest chance of Smith and his wife reconciling; and that Smith “had eight months to make things right” with his wife. He also warned Smith the divorce would be “ugly”.

The board decided to terminate Smith based on corporate restructuring, poor work performance, and failure to improve work performance.

Smith sued MRS, alleging wrongful discrimination and wrongful discharge under New Jersey’s LAD. Smith testified that he was never subject to formal discipline, received annual raises, and was promoted twice.

The trial court ruled Smith failed to show he was discriminated against. An appellate court reversed, and the New Jersey Supreme Court unanimously upheld the appellate decision, stating the LAD prohibits employers from discriminating against job candidates and employees because they are single, married or “transitioning from one state to another”. The court considered the CEO’s comments to be biased against people seeking divorce.

Marital status is one of the extensive list of protected categories under California’s Fair Employment and Housing Act. Under Government Code §12940(a), employers are prohibited from refusing to hire, employ, or train; discriminate in compensation, employment conditions or privileges; or terminate an individual because that person is married, single, separated or divorced.

These protections for divorcing employees may raise some issues for business owners and management. Consider the following: 

• Spouses of partners and employees with complex compensation packages may have a financial interest relating to spousal and child support, which means a company may have to undergo a valuation process.

• A valuation could mean a disruption in operations as employees gather and provide information for forensic accountants who may need to review the books, inventory, etc.

• A business’s human resources department may be subpoenaed to provide information. 

So unless a business qualifies for a rather narrow ministerial exception, an employer can’t fire an employee for divorcing. 

An Ounce of Prevention: Protecting Business Interests

From a family law perspective though, there are some things a business owner may do to minimize damage from an employee or business partner’s divorce:  

• Business partners and highly compensated executives should draw up prenuptial or postnuptial agreements, and have a buy-sell agreement in place.

• Business owners should compensate themselves and their partners with actual salaries, rather than stock or other interests in the business. An ex-spouse may in certain cases, wind up with ownership interests.

• Partners and major shareholders going through a divorce should consider hiring a joint forensics accountant to represent both parties, to hopefully reduce disruptions to business operations.

• Get a valuation of the business at the date of marriage.

• Management should limit exposure of private records like confidentiality agreements and redactions to agreements. Trade secrets, employee files, and private financial records for the business and individuals may be at stake here. An attorney can provide counsel as to what records need to be provided, to whom, and how to keep them all out of the public record.

• Client information may need to be protected, particularly under the Health Insurance Portability and Accountability Act.  

Employers should also be aware of the various protected categories and take steps not to discriminate, harass or retaliate against an employee on such bases.