How To Protect Your Community From Fair Housing Violations By Outside Contractors

This month, the focus is on fair housing trouble from an unexpected source: the people who work at your community, but aren't your employees. Communities often rely on a variety of outside contractors or vendors to perform services on their behalf, ranging from independent leasing agents and property management companies to landscapers, painters, and plumbers, among others.

If one of your residents complains about harassment or discrimination by one of these people, it's not enough for you to apologize and explain that he doesn't work for you, so you can't do anything about it. Depending upon the circumstances, you could be held liable for fair housing violations committed by outside contractors—particularly if you knew about the discrimination or harassment but failed to take action to stop it, explains Nadeen W. Green, fair housing expert and senior counsel to For Rent Media Solutions.

In this issue, we'll give you five rules to help you protect your community from fair housing trouble caused by outside vendors and contractors. Then, you can take the COACH's Quiz to see how much you have learned.

WHAT DOES THE LAW SAY?

The Fair Housing Act (FHA) prohibits housing discrimination based on race, color, national origin, religion, familial status, disability, or sex. The ban on sex discrimination also prohibits sexual harassment. In some states, the law extends fair housing protection to other characteristics, such as age or marital status.

The law requires owners of rental housing communities to ensure compliance with fair housing requirements. That means that a community owner may be liable for discriminatory actions it has taken, such as adopting a discriminatory policy to exclude applicants of a particular race or religion. It also means that communities may be liable for the discriminatory acts of their employees—for instance, when managers or maintenance staff treat applicants or residents differently based on a protected characteristic.

To avoid liability under the FHA, a community owner must ensure that its policies and employees comply with fair housing requirements. Taking that action will go a long way toward protecting yourself from liability. But it's necessary to take an additional step to shield your community from potential liability from outside contractors that perform services on your behalf.

Although a community owner may have much less authority over the conduct of outside contractors than it does for its own employees, the FHA holds community owners responsible for the discriminatory actions of outside contractors if they were acting as the community's “agent—that is, the contractor was authorized to act on behalf of and for the benefit of the community and was subject to the community's control.

If the outside contractor meets the criteria for being the community's agent, then the community may be held liable for fair housing violations committed by the contractor, even if he acts without the knowledge or consent of the community. Furthermore, the owner may be held liable for its own fair housing violation if it knew or should have known about the discrimination or harassment committed by an independent contractor, but did nothing to stop it.

Whether an independent contractor is considered the owner's agent can be a complicated legal determination, which depends on the facts of each case. Generally, courts look at a variety of factors, such as the relationship between the owner and the contractor, the nature of the contractor's business, and the general practices in the industry. The most important factor is the owner's right to control the contractor's actions, according to fair housing attorney Avery Friedman. For example, there may be little likelihood that you would be called to account for the isolated actions of the delivery person who fills your vending machines—but the odds of liability rise significantly for the actions of a part-time independent sales agent who commits a fair housing violation while showing one of your units, he says.

Given the complexity of the issue, it may be difficult for you to determine who—and who is not—considered your agent among the outside contractors who perform services for your community. Instead, your best bet is to consider that any of your contractors could trigger a fair housing complaint, and to take steps to protect your community from liability for their actions.

5 RULES TO PROTECT YOUR COMMUNITY FROM FAIR HOUSING VIOLATIONS BY OUTSIDE CONTRACTORS

Rule #1: Make Fair Housing Compliance Part of Your Contracts with Contractors

Depending on the nature of their business or the services they provide, vendors and outside contractors may not know about fair housing laws—or understand what it means beyond avoiding obvious forms of discriminatory comments or conduct, says Green.

You may expect independent brokers or property managers to be familiar with fair housing laws, but their level of understanding of fair housing issues may vary, depending upon their training and experience. Other contractors, such as painters or plumbers, may have little or no understanding of fair housing laws, adds Green.

To minimize the risk of a fair housing complaint triggered by the comments or conduct of a contractor or a contractor's employee, you should take steps to ensure that all contractors who work at your community have at least a basic understanding of fair housing laws—and common sources of problems, such as sexual harassment, advises Friedman. Depending on the nature of the services they perform, you could provide some contractors with basic fair housing training, though that may be impractical for others, acknowledges Friedman. However, at the very least, he says your staff should explain your community's fair housing policy to all contractors who work at your community and give them a copy of the policy.

In addition, there are two important documents that should be part of any arrangement with all your contractors: (1) an acknowledgement that the contractor understands your community's fair housing policies and the consequences of its failure to abide by those policies; and (2) an indemnification agreement that requires the contractor to repay you for any legal expenses or damages you must pay because of its violation of fair housing laws. These documents will go a long way toward protecting you, in the event that a fair housing complaint is filed by an applicant or resident because of something a contractor—or one of its employees—said or did.

Acknowledgement form. By signing the acknowledgement form, the contractor confirms that it understands your community's fair housing policies. Your attorney should be able to help you with the specifics, but the form generally spells out your community's commitment to treat all residents in a fair manner, regardless of race, color, national origin, religion, familial status, disability, or sex—and any other characteristics protected under state or local law. It's also a good idea to make a specific reference to sexual harassment, since it is a common source of liability from outside contractors, Green adds.

The acknowledgment form also confirms that the contractor agrees to comply with your policies and all applicable fair housing laws while it is working at your community. And to ensure that the contractor takes those obligations seriously, the form should specify the consequences of the contractor's failure to act in accordance with fair housing law—up to and including your right to fire the contractor or terminate its contract, Green says.

If you have a written agreement with the contractor, you can attach the signed acknowledgment form. If you don't have a written arrangement, have the contractor sign the form and file it in your records. And, most important, you should think twice before hiring a contractor that refuses to sign the acknowledgment form. Green says that it could be a red flag that the contractor does not take fair housing seriously.

Indemnification agreement. This legal phrase means that the contractor agrees to defend you in court and to repay you for any damages you are ordered to pay because of the contractor's violation of fair housing laws. Green explains that the agreement will allow you to hold the contractor accountable for your legal expenses and any damages you must pay because of something that the contractor did.

By requiring the contractor to pay you back for your legal expenses and damage award caused by its conduct, the indemnification reinforces the seriousness of a fair housing violation and provides a powerful financial incentive for the contractor to ensure that its employees comply with the law.

You may have a separate indemnification agreement, which you would attach—along with the acknowledgment form—to any written agreement you have with the contractor. Or, if you prefer, you may combine the fair housing acknowledgment and the indemnification agreement into one document for the contractor to sign.

Rule #2: Supervise Conduct of Contractors Working at Your Community

Train your employees to supervise outside contractors while they are working at your community, advises Green. Since your staff has been trained in fair housing issues, they will be able to detect—and immediately address—any comments or conduct by a contractor that could lead to a fair housing complaint. For example, you may be able to head off a potential fair housing complaint if your staff member drops by the worksite and overhears a contractor's work crew exchanging racially charged jokes or using ethnic slurs while on the job. The staff member will be in a position to do something to stop such conduct—such as speaking to their supervisor—before it leads to a formal complaint from a resident.

The level of supervision will depend upon the nature of the work and where it is performed, says Green. For jobs that do not involve a great deal of interaction with residents, it may be enough for a staff member to go to the worksite before the contractor starts the job, and then drop by intermittently until the job is done.

On the other hand, Green advises communities to ensure that a staff member accompanies contractors for any work to be performed inside occupied units. The likelihood of inappropriate comments or conduct—particularly sexual harassment—increases when a contractor has direct, unsupervised contact with residents in the privacy of the unit.

Generally, it's not a good idea to make exceptions—even for contractors that you know and trust not to violate the law. Explain to the contractor that the staff member's presence for work to be performed inside occupied units is as much for the contractor's protection as it is for yours to avoid an unfounded discrimination or harassment complaint from a resident.

Rule #3: Take Special Precautions to Prevent Sexual Harassment Claims

Pay particular attention to avoiding potential liability for sexual harassment claims based on comments or conduct of outside contractors. Green notes that outside contractors hired to provide services such as carpet cleaning, painting, landscaping, and pool maintenance are a frequent source of sexual harassment complaints.

HUD recently released guidance on sexual harassment claims under the FHA, which makes it clear that a property owner may be liable if any of his employees, agents, or contractors sexually harass an applicant or resident. Owners may be liable for a direct fair housing violation if they know about such sexual harassment and fail to take any action to stop it, according to HUD. Moreover, HUD says that an owner may be liable for sexual harassment committed by its employees or agents within the scope of their duties—regardless of whether the owner knew of or intended the wrongful conduct, or was negligent in failing to prevent it from occurring.

It's up to you to educate contractors that sexual harassment is considered a form of sex discrimination under fair housing law and the type of conduct that is prohibited. Explain your community's sexual harassment policies and specifically refer to sexual harassment in the fair housing acknowledgement form and indemnification agreement that all contractors must sign to work at your community, adds Green.

When supervising contractors, your employees should watch for any conduct that could be considered sexual harassment. For example, you may be able to head off a potential sexual harassment complaint if your staff member notices employees of the landscaping company regularly taking lunch breaks near the pool and trying to interact with female residents who may be swimming or sunbathing there. Train your staff members to immediately report any suspected sexual harassment so your community may take prompt action to stop it.

Finally, the potential for sexual harassment claims makes it all the more important to accompany contractors for work performed inside occupied units. The staff member's presence should minimize the potential for a contractor to sexually harass a resident—or to be falsely accused of inappropriate conduct by a resident.

Rule #4: Ensure Prompt Response to Complaints About Contractors

Under certain circumstances, community owners may be held liable for fair housing violations committed by contractors even when the community didn't know—or have any reason to know—about the discriminatory conduct. However, it often is difficult to prove that the contractor was acting within the scope of his duties as the community's agent when he committed the fair housing violation.

Liability is much more likely when the resident can prove that the community knew or should have known about the discriminatory actions of a contractor, but did nothing to stop it, according to Green. A community's failure to address the discriminatory actions is considered a direct violation of the FHA, and exposes the community to potential liability to pay a large damage award, including punitive damages.

To prevent such claims, Friedman recommends that communities establish policies and procedures to ensure a prompt response to any complaints about discriminatory or harassing comments or conduct by contractors working at your community. Train your staff to treat complaints about outside contractors seriously and to assure the resident that your community will investigate and deal with every complaint they receive about outside contractors. Make sure your staff doesn't ignore complaints or give the impression that the problem is beyond their control because it involves the employees of an outside contractor, warns Green.

If your investigation indicates that the complaint is valid, then you have an obligation to do something to stop it—and to prevent similar misconduct in the future. Your response should be proportionate to the offending conduct, according to fair housing experts. In some cases, it may be enough for you and the contractor to apologize to the resident and to reprimand the contractor, says Green. But she warns that such a response would be inadequate if the complaint involves serious misconduct. In such cases, you should take steps to remove the contractor from your community by either firing him or, if he has a contract, exercising your rights under the fair housing acknowledgement to cancel the contract.

Be sure to communicate the results of your investigation—and your response—in writing to the resident who registered the complaint. Even if the resident is dissatisfied with your response and files a formal complaint, your letter will provide documentary proof to counter any accusation that you knew about a contractor's violation of fair housing law, but failed to do anything about it.

Rule #5: Document Complaints About Vendors and How You Responded

Keeping good records is vitally important to defend yourself if you are subjected to an investigation or lawsuit for any fair housing complaint—whether it involves one of your employees or an outside contractor. The records document your efforts to prevent housing discrimination as well as your efforts to remedy any fair housing complaints that do arise.

Train your staff to encourage residents to put any complaints about outside contractors in writing; if they don't, instruct your staff to keep their own notes about verbal complaints lodged by residents.

Document how you investigated the complaint, the results of the investigation, and the steps you took to stop any offending conduct and to prevent it from happening again, advises Green. And keep a copy of the letter that you send to the resident notifying her about how you resolved the matter.

Keep copies of all written agreements with outside contractors, along with the signed fair housing acknowledgement forms and indemnity agreements. In addition, you should make a note in your files if you decide to terminate your relationship with a contractor because of a fair housing violation, Green says.

Fair Housing Act: 42 USC §3601 et seq.

Memorandum from Kim Kendrick: Questions and Answers on Sexual Harassment under the Fair Housing Act, issued Nov. 17, 2008; www.hud.gov/content/releases/q-and-a-111708.pdf.

COACH Sources

Avery Friedman, Esq.: Chief Counsel, Fair Housing Council, 705 City Club Bldg., 850 Euclid Ave., Cleveland, OH 44114-3358; (216) 621-9282; averyfriedman@fairhousingtraining.com.

Nadeen W. Green, Esq.: Senior Counsel, For Rent Media Solutions, 294 Interstate N. Pkwy., Ste. 100, Atlanta, GA 30339; (770) 801-2406; nadeen.green@forrent.com.