Punitive Damages for Sexual Harassment, Quirky Question # 56

Quirky Question # 56:

Our company is committed to eliminating sexual harassment.  We have a well-defined sexual harassment policy that is included in our employee handbook.  We also have conducted training sessions on a bi-annual basis to ensure our employees understand our company’s position on sexual harassment.

Some time ago, one of our employees complained of sexual harassment.  For various reasons (including the timing of her complaint, our company’s hectic schedule at the time, and her lack of persistence), her complaint fell through the cracks.  She now has sued our company and included a claim for punitive damages.  Given our commitment to eliminating sexual harassment (as reflected by our well-established policy), we do not have any risk of a punitive damages award, do we?

Dorsey’s Analysis:

My reaction to the fact scenario you present is that it contains positives and negatives.  The positives, of course, are that your company is “committed to eliminating sexual harassment,” and that you not only have a well defined sexual harassment policy but conduct periodic training sessions.  The negatives are that your employee’s sexual harassment complaint “fell through the cracks,” and that  the explanations you offer for that fact are not especially compelling.

Courts are not particular sympathetic to a company’s failure to investigate employees’ sexual harassment complaints and typically do not find that a company’s “hectic schedule” justifies delaying the initiation of an investigation.  Further, in my experience, courts would be completely unimpressed by a company’s attempt to shift responsibility to the harassment victim by suggesting that she was not sufficiently persistent in pursuing her claim.  Once an employee reports the harassment to you, it is incumbent upon your company to act.  I doubt that there is anything in the handbook you referenced or in the training you conduct suggesting that if your company is unresponsive to the employee’s first complaint, she needs to follow up by complaining again.

The bottom line is that sexual harassment complaints must be investigated promptly.  I am periodically asked just what “promptly” means.  Like much of sexual harassment litigation, this issue depends on the “totality of the circumstances.”  Moreover, there s a direct linkage between the seriousness of the allegations and the speed with which the company begins its investigation.  If, for example, the allegation involves a sexual assault, it is imperative that the company start its investigation immediately.  If, however, the harassment allegations were only a few off-color jokes, especially if they were not directed at the person complaining, a court might be a bit more tolerant of a slight delay in commencing the investigation.  But for any type of harassment allegation, the commencement of the investigation should be measured in days, not weeks, and certainly not months.  Even for allegations that involve less egregious conduct, failing to begin your investigation within days of receiving the complaint is a mistake.

Here, you state that your employee has filed a complaint and has included a claim for punitive damages.  This suggests to me that the actions about which your employee complained could be serious.  You inquire whether the mere fact that you have a sexual harassment policy, coupled with your bi-annual training, will suffice to defeat any claim for punitive damages.  Sorry to disappoint, but if there is disconnect between your policies and your enforcement of those policies, your company may be at risk for punitive damages.  In short, if your company ignores its well-established policies prohibiting sexual harassment, you may have exposure for punitive damages.

For example, a number of years ago, the 8th Circuit addressed this situation in the case of MacGregor v. Mallinckrodt, 373 F.3rd 923, 931 (2004).  As the court found in MacGregor, if a company discriminates in violation of its own anti-discrimination policies, the existence of the policies will not allow the employer to escape punitive damages.  In the MacGregor case, the HR Department did not formally reprimand a harassing manager for his conduct and did not communicate the results of its internal investigation to the complaining employee.  The 8th Circuit held that these “lax anti-discrimination policies were insufficient to keep the issue of punitive damages from the jury” and that the employer’s behavior was “sufficiently indifferent” toward the employee’s rights to support the maximum punitive damages award [under Title VII] of $300,000.

In a similar, more recent case, Bjornson v. Dave Smith Motors, No. 04-285 (D. Idaho July 31, 2008), the District Court denied the defendant’s post-trial motions and affirmed the jury verdict of $100,000 in punitive damages.  The court rejected the auto dealer’s argument that its well-established harassment policy insulated it from a punitive damages award.  The court found that the company had disregarded its policy by ignoring the plaintiff’s complaints, failing to investigate fully, and only providing the harasser a “meager warning” for his conduct.  The court observed further, “The employer must show that it implemented its policy in good faith.  As with the affirmative defense to the hostile work environment claim, there is substantial evidence from which a jury could conclude that the policy, although it existed, was not implemented in good faith.  It must be shown that defendant made efforts to implement its policy, through education of its employees and active enforcement of its mandate.” (Emphasis added.)

The highlighted admonition of the Idaho District Court appears to apply to your fact situation.  You will need to demonstrate the “active enforcement” of your policy’s mandate if you hope to rely on the existence of your policy to avoid potential exposure for punitive damages.  Based on the facts you describe, I’m not convinced that you will be able to do so.

Finally, keep in mind that Title VII has capped exemplary damages at $300,000 (or less, depending on the employer’s size).  Typically, however, sexual harassment claims are brought under both federal and state statutes, with a few common law claims thrown in as well.  The state statutes may (or may not) cap available punitive damages.  Be sure to check the state statute that may be implicated.  The common law claims (assault, battery, intentional or negligent infliction of emotional distress) usually will not have any limits on the potential punitive damages.  Given these facts, it is critical for you to treat sexual harassment seriously and effectively if you hope to avoid potential exposure for punitive damages.

Dorsey & Whitney

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