FIVE EASY PIECES: Take Control of Punitive Damage Awards in Employment Litigation

A recent federal case re-emphasizes the importance of management training to avoid punitive damages in employment litigation. An Alexandria jury had awarded each plaintiff $600,000 in compensatory damages and $2 million in punitive damages on claims of racial harassment. White v. BFI Waste Services, LLC, 2006 U.S. App. LEXIS 12749 (4th Cir. May 23, 2006). But the Fourth Circuit Court of Appeals held that, while the management training did not insulate the employer from all liability, the adoption and implementation of a comprehensive policy to address the issue did shield it from exposure to punitive damages.

The company argued that it had a complete defense to the harassment claim under the Farragher/Ellerth affirmative defense because it had an effective anti-harassment policy, and that it responded to complaints in accordance with the policy. The company demonstrated that each plaintiff received the policy prohibiting harassment and the procedures to follow if discrimination was experienced, including a separate telephone number for anonymous complaints. The plaintiff admitted that he had never complained through the established process, but the testimony supporting the claims was egregious, including testimony that various BFI managers regularly used racial slurs such as “nigger,” “boy,” “Zulu warrior,” and “porch monkey,” among others. The plaintiffs proved that they complained regularly to the shop steward who reported the complaints, and that the company never responded. The court found that this evidence was sufficient for a jury to find that the anti-harassment policy was “ineffective.”

Punitive damages were a different matter. The Fourth Circuit ruled that the company could not be vicariously liable for the supervisors’ discriminatory actions because they were contrary to the “good faith” efforts taken to comply. The court reiterated: “We have held that distributing an anti-harassment policy and conducting training seminars ‘preclude the award of punitive damages.'” White, 2006 U.S. App. LEXIS 12749 *8 (citing Bryant v. Aiken Reg. Med. Ctrs., Inc., F.3d 356, 354 (4th Cir. 2003), cert. denied, 540 U.S. 1106 (2004)). The court went on to note:

While the ineffectiveness of an anti-harassment policy [can] defeat an employer’s affirmative defense, as we have already noted, a policy’s ineffectiveness alone cannot demonstrate the lack of good faith required for justifying an award of punitive damages. If it could, employers with anti-harassment policies who failed on their affirmative defenses would automatically be exposed to punitive damages, and there would have been no need for the Kolstad Court to have formulated the additional “good-faith efforts” inquiry.

Id. *8-9 (citing Kolstad v. Am. Dental Assoc., 527 U.S. 526, 535 (1999)).

Action Item:

To avoid punitive damages, a three-step action plan is required. First, adopt a comprehensive policy that prohibits discrimination, harassment and retaliation. The courts have not hesitated to allow juries to award punitive damages if an employer’s policy is deficient and does not cover all issues. Gallina v. Mintz, Levin, Cohn, 123 Fed. Apx. 558 (4th Cir. 2005) (no policy that specifically prohibited retaliation, and there was no evidence offered that the managers knew about the anti-retaliation provisions in a manual). Second, training your managers. It is not enough to have a policy, employers must prove that its managerial employees are aware of the policy, how it is implemented, and how it is be enforced. Third, the company must prove it responds to complaints when received. In short, for a company to prove this “good faith” defense it must establish it has a comprehensive policy that is implemented through training and enforcement.

This decision is a critical reminder of the importance of providing regular training sessions for all managerial employees on the topics of discrimination, harassment and retaliation. An annual review of company policies and procedures, and a refresher on the types of conduct that can violate federal law, is not only beneficial to prevent claims, but may provide a shield to punitive damages.

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