November 21, 2007Client Alert

New Case Limits Punitive Damages for Class Action Sexual Harassment Claims

The potential exposure for sexual harassment class action claims has haunted employers at least since the $34 million settlement in EEOC v. Mitsubishi Motor Manufacturing of America, Inc. (Mitsubishi) over a decade ago. In particular, the prospect that punitive damages may be awarded to plaintiffs as a class made employers even more wary of litigation. In Mitsubishi, a court applied the pattern or practice theory to sexual harassment claims for the first time, making liability easier to establish. In 2003, a similar ruling prompted a $10 million settlement in EEOC v. The Dial Corporation (Dial).

A new case may exorcise some of those ghosts. The Northern District of Illinois recently issued a decision holding that punitive damages for sexual harassment cannot be awarded on a class basis, but must be determined individually for each member of the class. In EEOC v. International Profit Associates, the EEOC alleged that the employer fostered a hostile work environment because female employees were routinely subjected to sexual harassment and the employer failed to take appropriate action to stop the abuse. The EEOC sought punitive damages on behalf of the entire class, but the court refused.

This decision rejects the approach taken in the Mitsubishi and Dial sexual harassment class action cases. These cases would have allowed plaintiffs to collect punitive damages as a group, based on an overall hostile work environment. The jury would then divide the money among all the individual claimants based on the severity of harassment each experienced. This approach allowed punitive damages for individuals who did not even experience severe or pervasive harassment. Working in an environment where harassment in general is tolerated could be enough for an individual to collect, even if only one inappropriate comment was addressed to the individual. Such a low threshold for punitive damages opens the door to much larger awards for class plaintiffs.

The new decision divides pattern or practice sexual harassment class action lawsuits into two phases. The first phase focuses on whether the harassment, taken as a whole, is objectively so severe or pervasive that a reasonable person would find the work environment to be hostile or abusive. The plaintiff also has to show that the employer knew or should have known of the harassment in general and failed to take adequate steps to address the problem. At this point only injunctive relief can be awarded. The second phase focuses on each individual claimant and whether the harassment personally experienced was both objectively and subjectively hostile and abusive. The employer can attempt to prove that it took adequate steps to address that individual’s harassment. With this information, the jury then can award each claimant punitive damages only if the claimant’s individual experience was severe or pervasive.

This case presents the possibility that more courts around the country will embrace the same approach to awarding punitive damages in pattern or practice class action lawsuits. Because punitive damages would have to be proven on an individual basis, only claimants who could prove they experienced severe or pervasive harassment would be entitled to monetary awards, thereby decreasing the size of jury awards in such cases.

This recent development also highlights the importance of not only maintaining proper workplace policies and procedures in general, but also effectively implementing them when harassment complaints arise. Employers should, of course, take proper steps to prevent and correct promptly any harassment so that they can maintain an appropriate workplace environment and avoid any possibility of a class action lawsuit and punitive damages. Foresight and proper implementation can help to avoid the regrets that haunt employers with the benefit of hindsight.

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