Most organizations understand that a good anti-harassment
policy is the defense against “hostile environment” suits.
Unfortunately, the courts have ruled that the “Faragher/Ellerth defense” to
sexual harassment cases is NOT available to executive managers.
CEOs, board members, stockholders, and even vice-presidents of
HR are a company's “alter ego.” Their improper
acts can bind the liability, and there is NO defense which can
be asserted in court. Most companies are unaware of this part of
law. Top managers may be “undefendable” and create
strict liability.
The Standard Defense
In 1998 the U.S. Supreme Court decided two “companion” cases
regarding harassment under the Equal Employment Opportunity laws, Faragher
v. City of Boca Raton and Burlington Industries v. Ellerth.
In what has become known as the “Faragher/Ellerth defense” the
Supreme Court set forth standards for an employer to make a viable
defense of a harassment case:
to defeat the charges the employer must show that it “exercised
reasonable care to prevent and correct promptly any sexually harassing
behavior, and . . . that the plaintiff employee
unreasonably failed to take advantage of any preventive or corrective
opportunities provided by the employer or to avoid harm otherwise.” Faragher
v. Boca Raton, 524 U.S. 775, (1998); Burlington Industries
v. Ellerth, 524 U.S. at 765 (1998).
Based upon this language all knowledgeable employers have implemented
Anti-Harassment and Respectful Workplace Policies. In addition,
they have implemented other proactive practices such as anti-harassment
training, and continuing education and vigilance.
However, that was not the whole quotation
The Supreme Court also stated:
Vicarious liability automatically applies when the harassing
supervisor is either: (1) “indisputably within that class
of an employer organization's officials who may treated as the
organization's proxy” Faragher, 524 U.S. at 789,
118 S.Ct. 2275, or (2) “when the supervisor's harassment
culminates in a tangible employment action, such as discharge,
demotion, or undesirable reassignment.” Id. at 808, 118 S.Ct. 2275.
This limited the Faragher/Ellerth defense. There
are two exceptions. The second in the quote is for “quid
pro quo” harassment, in which there is a tangible employment
action such as hiring, firing, or discipline. This creates automatic
liability in which the victim may skip the employer's harassment
policy, go straight to the EEOC, and the company gets no “first
chance” to know of and correct the issue prior to being liable.
The other exception in the quote about direct, no defense liability
is for “Hostile Environment,” harassment by those at
the top of the organization. They are the organization. They have
so much control that they are deemed to be the “alter
ego” of the organization and their acts are a “proxy” for
the organization's acts.
In Acked v. National Communications, 339 F.3d 376, 383
(5th Cir. 2003), a federal circuit, citing Faragher, ruled:
“[A] corporation is vicariously liable for the harassment
of its President 'who was indisputably within that class of an
employer organization's officials who may be treated as the organization's
proxy'. Faragher at 789, 118 S.Ct. 2275. The Court further
suggested that an owner, supervisor holding a 'sufficiently high
position in the management hierarchy, a proprietor, partner, or
corporate officer may also be treated as the organization's proxy.
Citing Faragher at 789-790, 118 S.Ct. 2275; see also Johnson
v. West, 18 F.3d 725, 730 (7th Cir. 2000).
Other cases which hold that no defense is available when harassment
is committed by an employers' proxy or alter-ego are Mallinson-Montague
v. Pocrnick, 224 F.3d 1224 (10th Cir. 2000) (where offender
was Senior Vice President) and EEOC v. Reeves, 2003 WL
22999369 (C.C. Cal.) (offender was founder and CEO).
Adding Insult to Injury - Extra Punitive Damages
In addition to no defense-automatic liability, owners, Senior
Executives and Board members can generate extra punitive damages
due to their own lack of attention or uninvolvement in the anti-harassment
process. An all-too-frequent phenomenon is that executives excuse
themselves from anti-harassment and other employment relations
training. Everyone else is required to go, but those at the top
are “just too busy” to attend. This lack of attention
looks “arrogant” to a jury.
The courts have found that inattention to training is an “extraordinary
mistake” and “amounts to reckless indefense” which
justifies substantial extra punitive damages. Anders v. GDC
Inc. (4th Cir., 2002); Miller v. Kenworth of Dothan (11th
Cir. 2002); Griffin v. City of Opa-Locka, et al. (11th
Cir. 2001).
So, the very individuals who have the most at risk for their actions,
tend to be the least informed and the least involved in the anti-harassment
process. This guarantees larger punitive awards in addition to
the automatic liability.
Executives should also be aware of the potential for personal liability in some sorts of harassment cases. It is not just a matter
of the corporate coffers; the individual's own bank account can
suffer the hit as well. If the executive is undefendable this
can be a major personal problem.
What Can Be Done To Diminish The Liability?
The “alter ego” liability cannot be eliminated.
If a person in a “proxy” position engages
in hostile environment harassment the automatic liability will
attach. However, an organization can seek to diminish the chances
of the liability.
Training and Involvement
Those at the top of the organization should not skip training.
Instead, they should be the primary examples of proactive behavior,
attending training, and encouraging all others to do so.
Executives, facility managers, and board members should be given
information, such as this article, regarding their special status
as an “undefendable alter ego” at the time
they come into a potentially “proxyposition.”
Appropriate Humor
Special emphasis should be given to humor. “Teasing” or “off
the cuff” comments take on a heightened significance when
done by someone at the top. The little incidents of racial, ethic,
religious, humor or the small sexual innuendoes of an executive
can become evidence in court, and can generate big legal expense
and liability. Those in “proxy position” might
read It Was Just a Joke (Boardman Law Firm) or other articles that
illustrate the liability effects of what is uttered by executives.
Diminish the Alter Ego Status
In small organizations this may be impossible. The owner is the authority and there is little that can be done to balance or diffuse
that fact.
In larger organizations the division of authority can help protect
executives and board members.
Off-Site Complaint Alternative. One does not have to be an officer
of the company to be in a “proxy position.” The
general manager of a stand-alone facility may in practicality have
almost all personnel authority over that operation and be deemed
an “alter ego” for that location.
To diminish this status the organization's anti-harassment and
other complaint policies should name both an on-site and a headquarters-level
off-site person to whom employees can raise concerns about harassment.
Having only an on-site complaint process means the general manager
at the top could block any investigation about himself or herself.
The off-site alternative provides a way around the general manager
and shows that higher levels of the organization are still “in
charge,” thus diminishing the chances for “alter
ego liability.”
Human Resources Final Approval for Tangible Employment Actions.
Another way to diminish automatic, indefensible liability is by
assuring that human resources has the final approval authority
over all tangible employment decisions (hiring, firing, discipline,
promotion, pay adjustments, transfers). This means that an executive
or officer does not have absolute control, and employees who believe
they are being harassed can raise concerns to HR before a tangible
decision becomes effective.
The human resources final authority helps limited the “alter
ego” status of the officers and executives regarding
personnel matters. It helps prevent quid pro quo harassment
through both a formal review of the validity of a decision and
a complaint process to catch problems before they become indefensible.
This final approval practice will not change the liability once
a tangible employment decision has been implemented. It will not
change the “alter ego” status of an officer
or top executive who bullies or bamboozles human resources into
approving a problematic action. The final approval can, if effectively
used, be an important safeguard to diminish the chances of that
liability.
Special Attention for Board Members
Boards of Directors often include members who are not employees.
They do not receive the company policies, do not attend training,
and do not get orientation regarding the rules of conduct. Yet
they can wield very great authority, especially if they are major
stockholders, or family members of the owners. They are also frequently
present in the company's offices.
Even though the board members do not sign the employment documents,
they can exercise influence. In some instances the key board members
are seen as “all powerful” and their every action takes
on significance. In the case of Russell v. McKinny Hospital
Venture (5th Cir. 2000), the extraordinary influence of a
shareholder/family member in a family corporation influenced the
decisions of executives and created liability.
Board members need special attention to ensure that they understand
their ability to generate liability, and have at least a rudimentary
understanding of the employment discrimination laws. Board members
who do not have this understanding can unwittingly create indefensible
liability, often thinking that they are “just joking” or
bantering. Since they are in such important positions, no one is
going to tell them that they are offending, until the trap door
is sprung with the filing of the undefendable case.
Information for the board members is in their best interest, and
is essential for the protection of the organization.
Conclusion
The standard Faragher/Ellerth defense for harassment
cases is not available for acts committed by those at the top.
They are indefendable and the organization is indefendable if
the acts constitute discriminatory harassment.
Organizations can limit this liability through education; final
HR review of employment decisions; and off-site alternative methods
for complaints. The only way to really stop this indefensible liability
is for those at the top, the organization alter egos,
to be aware, understand the laws, and ensure that their own behaviors
are models of non-discrimination and a respectful workplace.
Copyright © 2005 by Robert E. Gregg. All rights reserved.
Bob Gregg is a partner at
Boardman Law Firm of Madison, Wisconsin. He has over 30 years of
experience in employment relations and has conducted over 2,000
seminars on employment law. Bob’s career has encompassed
canoe guide, carpenter, laborer, Army Sergeant, social worker,
educator, business owner and EEO officer. Bob’s emphasis
is to help employers identify and resolve problems before they
generate legal action. He has designed pay and absence policies,
and solved salaried position issues, for numerous private and public
employers.
Copyright © 2005 by Robert E. Gregg.
All rights reserved. |
