Punitive Damages Award Against Employer Reversed in Harassment Case

The 4th U.S. Circuit Court of Appeals reversed an award of punitive damages in a harassment case but left the compensatory damages award totaling $250,000 intact.

The plaintiff brought a lawsuit against his former employer, AutoZoners LLC, for violations of Title VII of the Civil Rights Act of 1964 and North Carolina law resulting from his co-worker's unwanted groping and sexually explicit language at work. The plaintiff, a part-time commercial driver at the company from September 2012 until he resigned in August 2013, alleged that a female co-worker physically harassed him more than 20 times. The plaintiff reported the harassing co-worker to his direct supervisor as many as 20 times between March and August 2013.

At trial, the jury found the company liable for sexual harassment in violation of Title VII and state law. For the federal sexual-harassment claim, the jury awarded the plaintiff $100,000 in compensatory damages and $600,000 in punitive damages. For the state law claim, it awarded the plaintiff $150,000 in compensatory damages and $60,000 in punitive damages. After post-trial motions, the district court did not disturb these findings by the jury. On appeal, the company challenged the punitive damages.

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To receive punitive damages under Title VII, a plaintiff must make two showings:

• The employer engaged in unlawful intentional discrimination.
• The employer engaged in the discriminatory practice with malice or with reckless indifference to the federally protected rights of an aggrieved individual.

To attribute actions of its employees on the company, a plaintiff must establish vicarious liability in one of four ways:

• When the employer authorizes the employee's tortious act.
• When an employee is unfit, and the employer acts recklessly in employing the employee.
• When the employee served in a managerial capacity and was acting within the scope of employment.
  
• When the employer or managerial agent of the employer ratified or approved the act.

On appeal, the plaintiff argued that his claim for punitive damages was premised on the third category of vicarious liability—managerial capacity. Agreeing with the company, the 4th Circuit ruled that imposing punitive damages in a situation involving the mere knowledge of the co-worker's conduct and the manager's negligent failure to act would conflate Title VII's carefully crafted standards for liability for compensatory damages and punitive damages.

For purposes of compensatory damages, the involvement and reaction of the managerial-level employee is relevant to whether the company will be liable. But to prevail on punitive damages against an employer, a plaintiff must show that the managerial employee engaged in an intentionally discriminatory conduct or practice with malice or reckless indifference.

Ward v. AutoZoners LLC, 4th Cir., No. 18-2170 (May 11, 2020).

Professional Pointer: While the company was not liable for punitive damages because a manager was not involved directly in the sexually harassing conduct, the company was still responsible for compensatory damages because the manager did not appropriately react to the employee's claim of sexual harassment. Companies should ensure that managers are appropriately trained and aware of the potential impact of conduct in violation of anti-harassment policies and any failure to act.

Sean P. Joyce is an attorney with Carmagnola & Ritardi, LLC, the Worklaw^® Network member firm in Morristown, N.J.