Lessons Learned – Part Two – Punitive Damages

I have been working on a three-part series called “Lessons Learned.”

The first post focused on a recent published case from the U.S. Court of Appeals for the Sixth Circuit that held that a no-fault attendance policy violated the Family and Medical Leave Act. In case you missed it, there was a twist to the policy, so check it out. As you may be thinking, points were not given for taking time off under FMLA.

Today, we are going to learn from the mistake of a human resources (HR) manager in a Title VII case that resulted in an award of punitive damages. To be clear, the HR manager did not discriminate or retaliate, he just dropped the ball. Let’s look at the lengthy opinion from a high altitude so we can focus on just a couple of key points.

Hubbell v FedEx SmartPost, Inc. is another recently published opinion by the federal appellate court. The plaintiff worked for the company from 2006 until the end of 2014. She had no discipline, several awards and certificates for excellent service and was promoted to a “lead” before getting a new “hub manager” in 2011. That’s when everything changed.

The new manager allegedly told the plaintiff that she should accept a demotion “because ‘females are better suited to administrative roles and males are better suited to leadership roles.’” He also repeatedly disciplined her, had surveillance conducted to determine her bathroom usage, prohibited her from punching in early (although others did and they received “casual overtime” as a result), gave her poor performance reviews, demoted her and eventually fired her for supposedly leaving work early one day.

Along the way, plaintiff complained to  HR and, thereafter, filed a series of charges with the Equal Employment Opportunity Commission (EEOC). Eventually, a civil lawsuit alleging sex discrimination and retaliation was filed. There was a trial and the plaintiff was awarded $85,600 in front and back pay, $30,000 in non-economic damages (i.e., for emotional distress), $403,950 in punitive damages (which was reduced to $300,000 because it is capped under federal civil rights laws) and $157,733.75 in attorneys’ fees. 

There were a lot of issues discussed in the appellate decision, including that, for retaliation claims, you only have to show employment actions, such as the surveillance, that would discourage an employee from exercising rights and not a materially adverse employment action as required for discrimination claims. Also, the appellate court noted that the temporal proximity, by itself, of issuing three disciplinary actions within two months of plaintiff’s first EEOC charge – one within four days – may be sufficient, by itself, to show the causal connection between the protected action and the retaliation.

However, what I found interesting was the discussion concerning the punitive damages because there are not that many cases involving these damages.

The court relied on the three-part test in Kolstad v American Dental Assoc, 527 US 526 (1999), for determining the appropriateness of punitive damages. First, the plaintiff needs to show that the discrimination was perpetrated with malice or indifference to federal civil rights. Second, the plaintiff must show that the employer is liable because the person is a manager and acted within the scope of his employment. Third, if the plaintiff makes the requisite showing, the employer needs to demonstrate “good-faith” efforts to comply with the civil rights law to avoid punitive damages.

The company relied on an unpublished district court decision to argue that, without proof of “egregious” conduct, the award of punitive damages is improper. But the appellate court disagreed, saying that evidence of egregious conduct is but one means of satisfying the requisite proof of “malice or reckless indifference.”

The company pointed to its “implementation, promulgation, and training regarding anti-discrimination policies” to show the company did not act with malice or reckless disregard of employees’ federal rights. However, as the court explained, evidence of “malice or reckless indifference” focuses on the behavior of the individual who discriminated, not the company. Oddly enough, the fact that the company provided anti-discrimination training to managers actually supported the jury’s finding that the hub manager acted with malice or reckless disregard of federal civil rights. Moreover, implementing an anti-discrimination policy is not a shield in the Sixth Circuit to punitive damages.

A corporate HR manager testified that if an employee had complained, her next step would have been to open an investigation. However, she also conceded that she did not know of any investigation or report by the defendant company concerning any of the plaintiff’s complaints. The defense attempted to argue that the plaintiff was simply relying on testimony from a witness who was unaware of the investigation.

It asserted that “[i]t is not accurate to say that [the employer] never investigated, only that the Human Resources Department did not.” The appellate court found this to be an implicit admission that the Human Resources Department had not investigated the plaintiff’s complaints and found the suggestion that the legal department had conducted one to be unsupported by evidence. Thus, there was sufficient evidence to show that, despite its formal anti-discrimination policy, [the employer] did not engage in good-faith efforts to comply with Title VII.”

Moreover, the plaintiff testified that another “senior manager” from HR had met with her to discuss her complaint of discrimination following the poor performance review and comment by the hub manager. However, she claimed the HR manager responded by saying “he preferred the term ‘favoritism’ to ‘discrimination’ because ‘discrimination’ was an ‘inflammatory word.’ Rather than addressing [the plaintiff’s] concerns about discrimination, [he] told her that ‘maybe [she] just had a bad review, and to keep [her] head down, and let the managers do their job.’” Boom, the ball was dropped.

So, having a policy is obviously just the beginning of the good faith defense. An employer has to ensure that its managers are actually complying with it and that all complaints of discrimination are investigated, and the results documented.

Finally, when an employee complains about sex discrimination, it is not sufficient to do what this HR manager did.. Had the HR manager investigated, the treatment may have been halted and the employer could have avoided paying  a significant sum to its former employee.

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