In a recent case involving multiple issues—Title VII of the Civil Rights Act of 1964, constructive discharge, and state law claims among them— the U.S. 4th Circuit Court of Appeals (which covers South Carolina employers) outlined standards it will use to determine a punitive damages award based on vicarious liability. Many issues were appealed. In the following article, we’re focusing only on the Title VII punitive damages portion of the decision.
Background
The core premise of the case focused on sexual harassment claims at an AutoZone store in North Carolina. Keith Ward and Christina Atkinson were coworkers. Shortly after they started working alongside each other, she began groping him and engaging in sexually explicit language at work. He eventually quit.
Before Ward quit, however, he asked Atkinson to stop her offensive behavior. He also used AutoZone’s harassment policy to complain to a number of individuals with supervisory or management authority over the store.
Ward later sued AutoZone. At trial, jurors rejected his retaliation claim but ruled in his favor on the other remaining claims. They found AutoZone liable for sexual harassment and the intentional infliction of emotional distress (IIED). For the harassment claim, the jury awarded $100,000 in compensatory damages and $600,000 in punitive damages.
4th Circuit’s analysis
When an individual relies on vicarious liability to hold an employer liable for punitive damages under Title VII, he must do so under traditional principles of agency law. Agency law provides only four ways an employer can be held vicariously liable for punitive damages based on the act of an employee:
The employer authorizes the employee’s tortious (wrongful) act;
• An employee is unfit, and the employer acts recklessly in employing her;
• The employee served in a managerial capacity and was acting within the scope of employment; or
• The employer or its managerial agent ratified or approved the act.
Ward pursued his vicarious liability claim under only the third of the four options—that AutoZone was vicariously liable for punitive damages based on the conduct of three employees who served in a managerial capacity and were acting within the scope of their employment.
The 4th Circuit wrote, however, that when an employee seeks to impute punitive damages vicariously to an employer based on the actions of managerial employees acting within the scope of their employment, he must present sufficient evidence the managers themselves engaged in intentional discrimination to hold the employer vicariously liable for punitive damages.
The court observed a reasonable jury could have concluded AutoZone’s managers might have done more to address Ward’s concerns or perhaps acted sooner. The evidence was sufficient for a reasonable jury to conclude the company is liable for compensatory damages. Its liability for punitive damages, however, is an entirely different issue.
At best, AutoZone’s managers were negligent, not recklessly indifferent. Ward introduced no evidence the managers themselves engaged in intentional discrimination or acted with reckless indifference or malice in addressing his complaints.
Congress plainly sought to impose two standards of liability—one for establishing a right to compensatory damages and another, higher standard an employee must satisfy to qualify for a punitive award. Imposing punitive damages in the case of the mere knowledge of Atkinson’s conduct and negligent failure to act would conflate Title VII’s carefully crafted standards for liability for compensatory damages and punitive damages, thereby imputing liability to an employer in virtually every hostile work environment case based on a theory of negligence.
The court decided an employee seeking to hold an employer vicariously liable for punitive damages must establish more than that manager-level employees negligently failed to respond adequately to harassment complaints. He must show the managerial employees engaged in an intentionally discriminatory practice themselves with malice or reckless indifference.
Lessons for employers
The 4th Circuit has set forth a standard based on the language of the statute to impute vicarious liability for the purpose of imposing punitive damages in a Title VII case. An employee has to show more than negligence, and the manager in question must have acted with malice or reckless indifference. What the decision also teaches is that employers still need to have good harassment policies known by the employees and enforced by the management team in a timely and proactive way.
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