Ineffective Sexual Harassment Policy Does Not Protect Employer
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION v. MANAGEMENT HOSPITALITY OF RACINE (January 9, 2012)
Salauddin Janmohammed owned a number of IHOP restaurants, including one in Racine, Wisconsin. The Racine IHOP contracted with Flipmeastack, owned by Janmohammed’s wife, to provide payroll, human resources, and compliance services. Flipmeastack oversaw the daily operations at the Racine IHOP. In 2005, the Racine IHOP's district manager was Steve Smith, its general manager was Michelle Dahl, and its assistant managers were Nadia Del Rio and Junior Gutierrez. The Racine IHOP had a sexual harassment policy that stated that any form of harassment was absolutely forbidden and that employees were to report improper behavior to any manager. In 2004 and 2005, two teenaged employees at the Racine IHOP complained of sexual harassment. One complained to Smith but said that his response was passive, that she never heard from him again, and that she began being treated differently and more poorly. She also complained that an assistant manager engaged in extreme forms of sexual harassment, including physical touching. She claims she reported that behavior to other managers but got no response. The other teenager also complained about egregious sexual harassment by the same assistant manager. She also complained to other managers, who did nothing. The Racine IHOP began its own investigation only after a private investigator for the teenager’s attorney began asking questions. Gutierrez quit during the investigation and, as a result of the investigation, Smith decided to fire Dahl for violating the sexual harassment policy. Dahl sued Smith for sexual harassment but lost at summary judgment. The EEOC then filed suit on behalf of the two teenaged servers. A jury awarded one of the servers $1,000 in compensatory damages and the other $4,000 in compensatory damages and $100,000 in punitive damages. After the verdict, the defendants: a) moved for judgment as a matter of law, b) argued that they had established their Faragher/Ellerth affirmative defense, and c) that the punitive damages should be stricken or reduced. The EEOC asked that all the defendants be jointly and severally liable and also asked for injunctive relief. Judge Adelman (E.D. Wis.) denied the defendants motions and granted the EEOC's motions. The defendants appeal.
In their opinion, Seventh Circuit Chief Judge Easterbrook, Circuit Judge Bauer, and District Judge Young affirmed in part, reversed in part, and remanded. The Court first addressed defendants' motion for judgment as a matter of law. The only question is whether the evidence is sufficient to support the verdict. With respect to the sexual harassment claims, the Court appeared to have little difficulty in concluding that a rational jury could have found that the servers were subjected to a hostile work environment. It occurred "every shift," it was "highly offensive," and it included "physical touching." The Court turned to the Faragher/Ellerth affirmative defense. Under that defense, an employer can escape liability if it can prove that it exercised reasonable care to prevent and correct any improper behavior and that the employee unreasonably failed to take advantage of corrective or preventive measures. The mere existence of a sexual harassment policy is not enough. The Court stated that a reasonable jury could have found that the defendants exercised reasonable care -- but did not have to. Furthermore, even with the policy, a jury could have found that it was not effective. There was evidence in the record that none of the Racine IHOP managers followed the policy, that the training was ineffective, and that their investigation was not prompt. The Court turned to the employees' actions. Although neither employee reported the 2005 harassment to Smith, the Court noted that: a) the policy did not require a report to Smith, b) both employees reported the harassment to managers, and c) one employee's earlier reports to Smith had gone unheard (and even backfired). The Court found the jury’s determination that the employees took appropriate action not unreasonable.. The Court turned to the punitive damage award. Punitive damages are available under Title VII. Defendants' only challenge to the award is that they are inappropriate because it engaged in a good faith effort to implement an anti-discrimination policy. Again, the Court concluded that a rational jury could have found the policy ineffective and that the company did not engage in a good faith effort to enforce it. The defendants challenged the denial of their motion for new trial on two grounds -- that there should have been a special verdict form for the Faragher/Ellerth defense and that the district court improperly admitted certain evidence. The Court rejected both grounds. First, the use of a special verdict form is within the sound discretion of the district court and there was nothing confusing about the verdict form, in light of the instructions given. Second, the Court ruled that the harassment evidence of two other individuals was not an abuse of discretion. Finally, the Court turned the defendants appeal of the district court's finding of liability for Flipmeastack. The EEOC advanced two theories for liability -- a traditional “pierce the corporate veil” theory and a "directing the discriminatory act" theory. The district court rejected both of those theories but sua sponte found Flipmeastack liable on a control theory, a theory not advanced or defended by either party. The Court found that the district court’s holding was error for two reasons. First, it was error to adopt a position based on a case not advanced or cited by either party. Second, deciding whether Flipmeastack was liable under the control theory is a question for the jury in the first instance, not the court.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select