Scope of Relief in Sexual Harassment Cases, Quirky Question # 67

Quirky Question # 67:

We have a sexual harassment problem at our company.  I’ll spare you the grim details but let’s just say it’s an ugly situation, involving several members of management.  No physical contact or assaultive behavior but some widespread hostile environment issues.  Among other behaviors, for example, our managers apparently thought it perfectly appropriate to entertain clients at strip joints.  I’m trying to get my hands around the situation so I can report to our executive team.  Can you give me any sense of the risks we confront so I can provide our executives with a realistic appraisal of the situation?

Dorsey’s Analysis:

I have addressed the subject of sexual harassment in response to a number of other questions.  (To access those analyses, use the “View by Topic” tab on the upper left-hand side of this screen and scroll down to “Sexual Harassment.”  That will enable you to pull up all of the previous sexual harassment questions and analyses.)

Although most corporations have made substantial strides in eradicating sexual harassment from the workplace, sexual harassment problems have not disappeared.  Therefore, as reflected by your inquiry, it is important to understand the scope of potential liability when considering the issue of sexual harassment and how you wish to respond when confronted by an egregious situation.

Let me start with the basics.  As you undoubtedly know, sexual harassment is prohibited by Title VII.  But, a Title VII claim is not the only cause of action that will be asserted and is not the only claim about which you need be concerned when trying to evaluate the risks your company is confronting.

States have statutes that parallel the anti-discrimination prohibitions of Title VII, and each of these different statutory schemes is somewhat unique.  Further, plaintiff employees often will assert claims in addition to the statutory claims.  These common law claims can be quite different, depending on the nature of the conduct that has occurred.  If, for example, there has been physically assaultive behavior or the threat of such conduct, in all likelihood your company will confront claims for assault and battery.  If the perpetrator of the harassment has engaged in behavior that “shocks the conscience of the community,” your firm likely will be defending a claim for intentional infliction of emotional distress.  If the person who engaged in the harassing conduct had a history of this kind of behavior at other companies before your firm hired him, you may have exposure to a claim for negligent hiring.  If the perpetrator of the harassment has engaged in similar conduct at your company, and your company failed to address the problem or discipline the perpetrator, you may have to contend with a claim for negligent supervision.  In certain circumstances, if your employee had rights guaranteed by contract, you may have to defend a breach of contract claim.

As these examples demonstrate, the scope of liability you confront will depend on the nature of the underlying conduct and the resultant claims that are asserted.  Without knowing a bit more about your factual pattern, it is difficult for me to provide you too much specific information about the nature of the damages and/or other relief you confront.  But, with that caveat, here are a few thoughts for you to consider.

First, under the statutory schemes (whether federal or state), defendants typically confront the possibility of back pay.  In contexts where an employee alleging harassment has been terminated (either actually or “constructively”) back pay simply represents the salary and other benefits that the discharged employee would have received from the date of the discharge through the date of trial.  Of course, plaintiffs typically will seek the monetary equivalent of all the benefits an employee would have received but for her discharge (e.g., health, dental, and life insurance; 401k contribution or other equivalent retirement plan contribution; automobile and/or auto allowance; vacation and/or PTO days; payments for educational programs for which the employee was eligible; and various other perquisites unique to the company involved).  The amount of back pay is offset by the sums earned by the employee in other employment following her discharge.

Second, under the statutory schemes, the company also may confront the possibilty of front pay.  Front pay implicates many of the same issues as back pay.  Rather than compensating the discharged employee for the period from the date of discharge through trial, the front pay component compensates the employee for all of the salary and other benefits she would have received from the date of the trial until a point in the future in which the employee reasonably could have been expected to find comparable employment.  (In situations where the employee already has found suitable alternative employment, the front pay component may drop out of the equation.)

Third, depending on the nature of her injuries (including psychological or emotional injuries), a sexual harassment plaintiff may be entitled to pain and suffering or emotional distress damages.  These damages, which are capped under the federal statutory scheme, may be largely unlimited under state statutes or under common law legal theories.

Fourth, a plaintiff-employee may be entitled to recover exemplary (or punitive) damages.  Again, these damages are capped under the federal statutory scheme (depending on company size, they can be as much as $300,000), but they may be unlimited under parallel state statutes or the common law claims asserted by the harassment victim.  Some states, however, also limit the punitive damages under their anti-discrimination statutes, so this issue needs to be examined on a state-by-state basis.  Keep in mind too that the statutory caps are per plaintiff.  Therefore, if you had five plaintiffs who were affected by the conduct you alluded to, and your company had 500 or more employees, you would be exposed to potential punitive damages of $1.5 Million.  (If you would like to see additional analysis of punitive damages in sexual harassment cases, see Quirky Question # 56.)

Fifth, although the federal statutory scheme of Title VII does not allow for doubling or trebling of compensatory damages, some state statutes do provide for this type of recovery.  Again,  it is critical to examine the statutory scheme under which the claim is asserted to fully appreciate the potential exposure associated with a particular claim.

Sixth, along the lines of the last observation, some of the state statutory provisions may have unusual features, such as statutory penalties.  It is critical to understand these statutory damages provisions to comprehensively evaluate the potential risks.

Seventh, the statutory schemes are “fee shifting” statutes.  A prevailing plaintiff typically is entitled to recover her attorneys’ fees.  (Alas, the same is not true for the prevailing defendant.)  At times, the attorneys’ fees incurred in the pursuit of a plaintiff’s claim may exceed the compensatory damages to which the plaintiff is entitled.

As you can see, the seven categories discussed above relate to the potential financial risk your company may confront when faced with a sexual harassment case involving egregious conduct.  Courts, however, also may impose other types of non-monetary penalties on companies that disregard their obligations under Title VII.  These kinds of penalties may be quite diverse, depending on the imagination of the federal judge.  They include, by way of example, ensuring that the federally mandated posters are displayed prominently in a company’s lunchroom, conducting periodic training sessions on sexual harassment, monitoring future claims with corresponding reporting requirements to a special master or other court-appointed official, etc.  In some circumstances, a court may order “reinstatement” of a discharged employee.

Two relatively recent cases illustrate the creative resolutions certain courts have ordered when confronted by egregious hostile environment harassment.  In EEOC v. Custom Cos., No. 02-C-3768 (N.D. Ill. 2007), the agency sought relief on behalf of three female employees.  The employees alleged that they had been subjected to inappropriate physical contact, sexual advances and sexually explicit comments.  Moreover, in a fact pattern that at least partially parallels your situation, the plaintiffs also alleged that the company had required them to entertain customers at a strip joint partially owned by the company’s President, and had been forced to participate in a company-sponsored golf tournament where strippers from the same club performed.

After the jury awarded substantial damages ($2.3 Million), the court imposed far-reaching injunctive relief.  Characterizing the company’s conduct as “reprehensible,” the court ordered a four-year injunction.  Reacting negatively to the “hyper-sexualized” work environment, the court ordered the employer to comply with Title VII, post notices apprising the company’s employees of the jury verdict and require employees to participate in harassment training programs.  Perhaps most troubling from the company’s perspective (though certainly not unjustified), the court also ordered the company to notify its customers of the jury verdict.

Another case brought by the administrative agency, EEOC v. JOBEC Inc., d/b/a McDonald’s, No. 06-cv-01871 (D. Colo. April 3, 2008), involved claims by four young female employees (ages 15-19).  The alleged harassment included grossly inappropriate physical contact, requests for sexual favors, and offensive remarks.  In addition to substantial financial damages, the court-ordered consent decree required the company to refrain from future sex discrimination and harassment.  The court also directed the employer to send a letter of apology to the four plaintiffs, as well as all other female employees who had worked at the company-owned restaurants during the relevant time period.  The order required JOBEC to update its anti-discrimination policies and disseminate the revised policy annually for the next three years to all of its employees and new hires.  The court also directed the company to conspicuously post a notice in each of its restaurants informing the employees of the settlement, describing examples of prohibited conduct, and providing contact information for relevant federal and state investigative agencies.

As you can see from the discussion above, when egregious sexual conduct occurs, a company confronts serious financial damages and potentially onerous injunctive relief.  You have a sobering message to deliver to your management.

Dorsey & Whitney

Dorsey is a business law firm, applying a business perspective to clients' needs. We make it our first priority to know the context in which you do business - your market, your competitors, your industry.

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