In this issue:United States Supreme Court Frames New Rules On Sexual Harassment
- United States Supreme Court Frames New Rules on Sexual Harassment
- California Supreme Court Finds That Supervisors Cannot Be Individually Liable For Discrimination
- Federal Court of Appeals Finds Workplace Arbitration Agreement Unenforceable
Two recent decisions of the United States Supreme Court may have a major impact on the manner in which sexual harassment cases are decided in federal court. Both cases addressed the issue of when an employer may be held liable for the sexual harassment perpetrated by its supervisory employees.
Prior to the two decisions, Burlington Industries v. Ellerth, 66 U.S.L.W. 4634 (June 26, 1998), Faragher v. City of Boca Raton, 66 U.S.L.W. 4643 (June 26, 1998), federal courts had made a sharp distinction between sexual harassment which involved requests for sexual favors, and those which involve the creation of a hostile environment, for purposes of assessing liability of an employer for the acts of its managers and supervisors. Following these two decisions, employees suing for sexual harassment may face a lower hurdle in getting their cases to trial, although an employer may have a new defense to sexual harassment claims if it took proper steps to prevent the harassment in the workplace.
Ellerth involved a salesperson who alleged that she was subjected to "boorish and offensive remarks and gestures" by a vice president. These remarks and gestures, Ellerth claimed, and what she believed were implied threats to deny her promotions or other tangible benefits, were enough to make her quit her job, although the threats were not carried out and she actually received her promotion. Ellerth never complained to anyone at the company about the alleged harassment. After another supervisor warned her about promptly returning telephone calls, Ellerth quit, and three weeks later sent a letter notifying her employer that her reason for quitting had been the sexually hostile environment created by the vice president. The employer defended the case, arguing that the vice president had made no quid pro quo demand for sexual favors, and that because he had not carried out any of the alleged threats, Ellerth had suffered no tangible loss of any job benefit. The vice president's conduct, the employer argued, was conduct forbidden by the employer's policies and therefore outside the scope of his employment.
While the Court agreed that the sexually harassing conduct was outside the scope of his employment, it decided that under traditional principles of vicarious liability, an employer could still be liable for "an actionable hostile environment created by a supervisor with immediate (or successively higher) authority over the employee." The Court also ruled, however, that where the harassment did not result in a "tangible employment action," such as discharge, demotion, or the denial of a promotion, being taken against the employee, an employer with an established and effective anti-harassment policy may avoid liability to a harassed employee where it acts to prevent harassment in the workplace.
Where no tangible employment action is taken against the employee, the Court ruled that an employer will be entitled to prevail in a subsequent lawsuit where: 1) the employer exercised reasonable care to prevent and correct harassing behavior; and 2) the harassed employee failed to take advantage of preventive or corrective opportunities to end the harassment offered by the employer. The Court specifically ordered the lower court, in reconsidering the Ellerth case, to allow the company to present evidence on these issues.
The Faragher case involved an action brought by a female lifeguard employed by the City of Boca Raton, who claimed that she had been subjected to sexual harassment by two of her supervisors. This conduct included unwelcome touching of plaintiff's buttocks, vulgar and sexual comments, and crudely demeaning references to women. On one occasion a supervisor simulated a sex act on Faragher.
While the city had a policy prohibiting sexual harassment, it never disseminated that policy to its beach employees, and the trial court found that city officials made no effort to monitor or check the conduct of the supervisors involved in the harassment.
Applying the new standards it employed in Ellerth, the Court ruled that where a supervisor creates a sexually hostile environment, the employer can be found liable under principles of vicarious liability, even where no "tangible employment action" such as discharge or demotion takes place. The Court once again stated that an employer can establish a defense to a claim of hostile environment sexual harassment by a supervisor if it can show that it took reasonable steps to prevent the harassment, but also ruled that Boca Raton, by failing to make any effort to distribute its sexual harassment policy to lifeguards or take any measures to restrain the supervisors, was precluded from making this showing. These cases may shift the emphasis in cases involving supervisor harassment towards the efforts of the employer to prevent harassment, and opportunities offered to employees to seek redress.
The impact of these two decisions on employers may be profound. On the one hand, Ellerth and Faragher clarify principles underlying employers' liability for the acts of supervisors, and will make it easier in some federal jurisdictions to sue employers for the conduct of their managerial personnel. In other jurisdictions, the effect may not be as profound. California courts applying this State's civil rights laws have already applied principles of vicarious liability expansively. What these two cases can do for California employers is act as the harbinger of a new defense to claims of harassment, and underscore the importance of taking measures to prevent sexual harassment from occurring, as proactive measures can also serve to exonerate an employer sued for harassment due to a supervisor's conduct.
Although most employers have existing policies on sexual harassment, the Faragher case makes it clear that an employer must do more than simply enact a policy, by taking steps to insure that the policy is widely distributed, and that mechanisms for reporting harassment exist and are made known to all employees. Another lesson employers can draw from Faragher is the potential liability that can result from failing to monitor the conduct of their supervisory personnel. The Court ruled that the city was precluded from asserting its policy against harassment as a defense in part because it had "made no attempt to keep track of the conduct of supervisors," in addition to providing no clear means to bypass them in order to register complaints. For employers who have proper management controls in place, and who provide an effective method for employees to seek redress for harassment, Ellerth and Faragher may provide the basis for an effective defense to claims of sexual harassment, where the harassment does not result in demotion, discharge, or other adverse job action.
California Supreme Court Finds That Supervisors Cannot Be Individually Liable For Discrimination
Resolving a dispute between California courts of appeal on the application of California's anti-discrimination statute, the California Supreme Court held that the state's Fair Employment and Housing Act ("FEHA") was not intended to make individual supervisors liable for alleged discrimination. An employee's recourse in such instances is to sue the employer directly. Under the Court's ruling, individuals may still be personally liable for harassment.
In Reno v. Baird, No. S065473 (July 16,1998) the Supreme Court sided with an earlier court of appeal decision, Janken v. G.M. Hughes Electronics, 46 Cal.App.4th (1996), which found that the FEHA imposed personal liability upon supervisors only for acts of harassment or retaliation, but not for making personnel management actions such as work assignments, hiring, firing, evaluations and the like. Prompting the high court's review was another appeal court's opinion that the FEHA permitted individual liability for such management actions.
The Supreme Court reasoned that since the FEHA expressly excluded small employers from the Act's purview, it would make little sense to interpret the statute to permit liability against individuals. It found the employee's argument, that excluding supervisors would lead to reckless and deliberate violations - a "chamber of horrors" - to be unpersuasive ("Chicken-Little-esque"), reasoning that an employer who faces civil liability for the conduct of its supervisors will have ample motivation to correct a supervisor's conduct.
The Court noted that its conclusion that only employers, and not individual supervisors, were liable for job discrimination, was shared by an overwhelming majority of federal courts interpreting Title VII, the Federal anti-discrimination statute.
The impact of this decision for employers is an easing of the burden on supervisors responsible for making personnel decisions, such as hiring and firing, promotion, demotion, the provision of support assignments, and other "commonly necessary personnel functions," from the prospect of personal liability. Employers remain liable where such decisions are made for discriminatory reasons. Where a supervisor departs from the conduct required by his or her job, such as engaging in physical abuse, the use of slurs, or the making of unwanted sexual advances, individual liability can still arise.
Federal Court Of Appeals Finds Workplace Arbitration Agreement Unenforceable
In a decision which creates an open conflict with the decisions of other federal courts, a panel of the federal appeals court responsible for the Western United States, including California, ruled that an employer may not require employees or prospective employees to agree to arbitrate federal discrimination claims as a condition of employment. Duffield v. Robertson, Stephens & Company, No. 97-15698, (9th Cir. (Cal.) 5/8/98).
The future of this decision remains in doubt, as attorneys representing the employer will certainly challenge the ruling through a petition to the United States Supreme Court. While this legal challenge to this decision is pending, however, employers are faced with a series of difficult choices in initiating or continuing a policy of requiring the arbitration of workplace disputes.
In Duffield, the employee, Tonjya Duffield, appealed after a trial court refused to hear her action for sexual discrimination and harassment, and ordered the dispute into arbitration, pursuant to an agreement she signed as a condition of her job offer. Her arbitration agreement stated, among other things, that she would arbitrate any dispute, claim or controversy which arose between her and her employer. Duffield argued that the arbitration agreement should not be enforced against her, because it was coerced and failed to protect her substantive rights under Title VII, the federal anti-discrimination statute.
On appeal, the court sided Duffield in a decision which, if upheld, could have far-reaching impact on California employers. The court ruled that revisions to federal civil rights laws made by Congress in 1991, while making no specific statement concerning arbitration, were intended to prohibit mandatory arbitration agreements under which prospective employees surrendered their rights to litigate Title VII claims, such as race and sex discrimination, in court. The court ruled that requiring an employee to agree to arbitrate as a condition of receiving a job results in an "involuntary" agreement which is "fundamentally at odds" with the Civil Rights Act of 1991.
The court's decision drew a sharp distinction between an agreement to arbitrate which is entered into as a condition of employment, and an agreement to arbitrate which is made after a claim has arisen. Where an agreement to arbitrate is made after the claim arises, that employee is merely expressing a preference for a cheaper, less time consuming procedure, the court reasoned.
The Duffield decision presents a dilemma for employers who have made a commitment to arbitrate all claims, including federal discrimination claims. Because the decision seems at odds with earlier Supreme Court decisions, and the decisions of other federal appeals courts, it may not survive the appeal process. On the other hand, it is impossible to predict with certainty whether the Supreme Court will decide to review the case, and if so, when. In the meantime, employers are confronted with a ruling which finds that mandatory arbitration of federal discrimination claims is prohibited by law.
If the employer decides to abandon its commitment to arbitration, it may be doing so for a transient reason, if the Duffield decision is later overturned. On the other hand, if an employer discharges or refuses to hire an employee for refusing to sign an all-encompassing arbitration agreement, it may face liability for retaliation or wrongful termination. The employee might be able to argue that the arbitration agreement was illegal, and his or her refusal to sign it therefore a protected activity.
For many reasons, abandoning arbitration is not a desirable result for employers who, along with their employees, benefit from the swift and inexpensive arbitration procedure. As long as an employer is willing to recognize the current limits upon arbitration, and carefully rethink new agreements, arbitration may be continued. Where arbitration agreements have already been entered into with current employees, it may not be necessary to revise existing agreements. Employers should be aware, however, that existing agreements may be construed so as to no longer require the arbitration of federal discrimination claims.
Employers who require arbitration agreements for new employees, or who are in the process of implementing a system of arbitration agreements, should have counsel review the agreement being given to new or existing employees. Because an agreement to arbitrate which arguably includes Title VII claims could be found to violate public policy based on the Duffield ruling, employers should modify their new agreements to include a clause which limits the mandatory arbitration of discrimination or other claims to the maximum extent permissible under existing law, and which specifically states that it is not the parties' intent to compel arbitration in any circumstance where it would be unlawful. An employee who refused to sign an agreement with such a limitation would be hard pressed to argue that his or her refusal was justified because the agreement was illegal.
Workplace arbitration agreements remain an unsettled area of law, largely because of the organized activities of the plaintiff's employment bar, which is actively seeking to prohibit such agreements, both in court and in the legislature. While workplace arbitration can confer benefits on all parties involved, employers must keep informed, due to the evolving nature of the law in this area.