President Clinton is not the only one making the news on sexual harassment these days. In a trilogy of decisions, the United States Supreme Court has addressed this subject and begun to give more definition to what has been an amorphous concept. Unfortunately, the answers the Court gives are not uniformly good news for employers. In these cases, the Court has decided (1) same sex harassment is prohibited by Title VII; and (2) employers are vicariously liable for the sexual harassment by their supervisors subject to an ill-defined but apparently very limited affirmative defense for employers. However, it appears the Supreme Court has sent a message that it believes litigants and lower courts are getting carried away on claims of sexual harassment. According to the Court, the law prohibiting sexual harassment is not intended as a general civility code or intended to eliminate all differences in the ways men and women treat each other. By coincidence the New Jersey and California Supreme Courts have also recently decided cases having significance for sexual harassment claims.
Same Sex Harassment
In Oncale v. Sundowner Offshore Services, Inc., an oil industry roustabout sued his employer for sexual harassment as a result of the allegedly humiliating, sex-related actions of his supervisors and a co-worker. The Fifth Circuit held that plaintiff had no cause of action under Title VII for sexual harassment because his harassers were also male. Other federal courts which had considered the issue had split, some recognizing the claims and others, not. Those courts which had recognized such claims as viable had differed as to whether the harasser's conduct must be motivated by homosexuality.
The Supreme Court disagreed with the lower court opinion in Oncale. In an unanimous opinion, the Court held that same-sex harassment comes within Title VII. It expressly rejected the employer's argument that the recognition of such a claim would transform Title VII into a general civility code for the workplace. In perhaps the most interesting part of the opinion, the Court emphasized that Title VII does not prohibit all verbal or even physical harassment. Rather, to be covered by Title VII the harassment must constitute discrimination because of sex; i.e., the victim's gender motivated the offensive conduct. Indeed, the Court seemed to go out of its way to recognize the limitations of its holding and in the law of sexual harassment. At times the opinion seemed to be more a plea for common sense in the application of the law of sexual harassment than a discussion of same-sex harassment. The Court also required that the conduct have offensive sexual connotations. It emphasized that sexual harassment did not cover "innocuous differences in the ways men and women routinely interact with members of the same sex and of the opposite sex."
The New Jersey Law Against Discrimination ("NJLAD") expressly prohibits discrimination because of one's sexual orientation. Moreover, the Appellate Division has also held that a heterosexual male could sue his heterosexual co-workers under NJLAD when they harassed him because they thought he was a virgin. Zelewski v. Overlook Hospital. Thus, New Jersey law under the NJLAD is consistent with Oncale.
Vicarious Liability of Employers
One of the more difficult issues in the field of sexual harassment has been what liability should the employer have for the sexual harassment committed by one of its employees. Should the employer be subject to a negligence substandard; i.e., is it liable only if it has failed to take reasonable steps to prevent the harassment from occurring or responding to a complaint of harassment? Alternatively, many have urged that the employer be strictly liable because the harasser is acting within the scope of his employment or is assisted in committing the harassment by the authority he has as a result of his position.
Federal and state courts have split on this issue. In New Jersey, the Supreme Court ruled several years ago that for certain types of relief, an employer's liability for hostile work environment sexual harassment by a supervisor will depend upon agency principles; for other relief, the employer is strictly liable. For quid pro quo harassment, the employer is strictly liable. When the harassment is committed by a co-worker rather than a supervisor, the employer is liable only if its negligence permitted the harassment.
The Holding
The United States Supreme Court confronted the issue of employer liability in two recent cases. Faragher v. City of Boca Raton; Burlington Industries, Inc. v. Ellerth. In Faragher, a female lifeguard sued her employer and immediate supervisors under Title VII for hostile work environment sexual harassment causing her to quit her job. In Ellerth, the plaintiff, a salesperson, sued under Title VII for what she characterized as quid pro quo harassment by a second line manager. In these companion cases, the Supreme Court held that an employer is vicariously liable for the sexual harassment of a supervisor subject to an affirmative defense for the employer based upon the reasonableness of the employer's conduct as well as that of the plaintiff. In reaching this decision, the Court held the employer's liability did not depend upon whether the harassment was in the nature of quid pro quo or hostile work environment. In either case, the employer would be vicariously liable for the supervisor's harassment.
The Court's Reasoning
Although the Court engaged in a lengthy and rather tortured analysis of whether the supervisor was acting as an agent of the employer under traditional agency principles, the decision ultimately was based upon very practical considerations. The Court wanted a bright line test permitting employer and employee to know that the employer would be liable for harassment of supervisory personnel. The Court decided that between an innocent employer and an innocent employee, it was better policy for the employer to bear the consequences of the harassment. The Court reasoned that because sexual harassment was relatively common in the American workplace, the employer could reasonably be expected to assume this risk in conducting its business. Further, the Court believed the employer was in a position to reduce the risk of sexual harassment by screening, training and monitoring its employees.
The Supreme Court's lengthy analysis of agency principles is largely irrelevant to employers and what they must do in the future. Indeed, some might call the Court's analysis a rationalization for its decision. Suffice it to say, the Court ultimately decided that a supervisor was assisted in his ability to harass by his supervisory authority and that because adverse employment action is (generally) taken by the supervisor as part of the harassment, the employer should be deemed to have acted.
The Employer's Affirmative Defense
Although it held the employer vicariously liable for the harassment of its supervisors, the Court recognized an affirmative defense for the employer; i.e. the employer would not be liable when no tangible adverse employment action (i.e. job detriment) was taken against the plaintiff if the employer could prove (1) it exercised reasonable care to prevent and correct promptly the harassment and (2) plaintiff unreasonably failed to take advantage of any preventative or corrective opportunities provided by the employer or to avoid harm otherwise. Unfortunately, the Court did not provide much guidance on the parameters of this defense. It appears to us the defense is of limited utility to employers as there are few cases when the plaintiff does not claim tangible adverse employment action by the employer as a result of the harassment.
There are a number of unanswered questions relating to this defense. To identify the most obvious, what is the necessary adverse employment action for the defense even to be available? Will various non-actions be sufficient; e.g., non-promotions, raises which are not as high as plaintiff contends they should have been, etc.? The Court spoke only of the most obvious adverse actions in the opinion - hiring, firing, promotion, compensation and work assignments. As you know, there are many, more subtle actions or non-actions which might be considered adverse as well.
Other unanswered questions include whether this defense will apply to the initial acts of harassment before there is any complaint when the employer responds promptly and effectively to a complaint? Perhaps most importantly, does the requirement of no adverse action mean that when there is such action, the plaintiff need not make a complaint or otherwise comply with a company's internal complaint procedures? While the Court's language might suggest as much, this does not make sense, especially in view of the Court's recognition that Title VII encourages employers to adopt and follow such procedures.
New Jersey Law
The New Jersey law on employer liability for sexual harassment appears to be based on a different rule although it is not clear whether ultimately a practical difference will result. In Lehmann v. Toys 'R Us, the New Jersey Supreme Court held that an employer would be strictly liable for the sexual harassment of its supervisors on claims for equitable relief (e.g., lost pay, reinstatement) but liable only under agency principles for compensatory relief (i.e. damages for emotional distress) and punitive damages. Although the Court said that in most instances the employer would be liable for the harassment by supervisory employees for compensatory relief, the rule is technically not one of vicarious liability as it is now under Title VII.
Further, the New Jersey Court recognized an affirmative defense of prompt and effective remedial conduct which is different from the affirmative defense recognized in Faragher and Ellerth. This defense is potentially broader and may relieve the employer of any liability for the harassment. However, there is substantial dispute as to the scope of the defense and there are few cases in New Jersey defining the limits of this defense since Toys 'R Us.
Efforts to Stop Harassment
Although the decisions in Faragher and Ellerth do not, in our opinion, recognize in a meaningful way the efforts of employers to eliminate harassment in the workplace, you should not believe these efforts are now worthless. In addition to the fact that New Jersey has for the present apparently decided to carve out a different position on this issue, the United States Supreme Court decisions make it even more important that employers prevent harassment from occurring in the first place and stop it promptly if it occurs. If the employer does not, it will be liable for the harassment. It should also be noted that the Supreme Court reaffirmed that employers are not strictly or vicariously liable for the harassment of co-workers; negligence is still the rule.
Worker's Comp Insurance Provides Coverage For Bodily Injury Caused by Sexual Harassment
The New Jersey Supreme Court recently provided employers with insurance coverage for what will probably be a small number of sexual harassment cases. In Schmidt v. Smith, the Court held that the employer's liability endorsement of a worker's compensation policy would cover the liability of an employer for bodily injury resulting from the sexual harassment against an employee by a supervisor. The Court also suggested this coverage will apply to all discrimination claims in which bodily injury occurs. However, the insurance coverage apparently will not cover the liability of the harassing employee.
The employer's liability endorsement is a gap filler and provides coverage for an employer's liability to its employees for bodily injury when the worker's compensation coverage does not apply; i.e., those relatively few cases when an employee may sue the employer outside worker's compensation. The worker's compensation carrier had expressly excluded from this coverage claims for discrimination and harassment. The Court, however, held that this exclusion was unenforceable as contrary to public policy because it prevented the employer from satisfying its statutory duty to obtain insurance for all bodily injury occurring to its employees during the course of employment. Once this exclusion was voided, the employer's liability endorsement would cover bodily injury resulting from sexual harassment during the course of employment. The Court also suggested that worker's compensation benefits for harassment were available as an alternative remedy for a victim of sexual harassment; i.e., the employee may choose between claims for worker's compensation benefits and damages under the Law Against Discrimination (or Title VII).
The practical effect of the decision seems rather limited. In most sexual harassment cases, there is no bodily injury, i.e., a physical manifestation of the emotional distress associated with the sexual harassment or, if there is, those injuries are minimal. There is no suggestion in the opinion that the worker's compensation policy would cover claims for wrongful discharge or loss of income that were not directly caused by the bodily injury or that claims for punitive damages would be covered.
It may make sense, however, to notify the worker's compensation carrier of a sexual harassment claim to be on the safe side, especially before one knows whether there are claims of bodily injury. The downside is that the compensation carrier will demand information about the claim and may want to participate in the defense of the matter. The carrier also often has different interests than those of the employer.
Sexual Harassment Investigations
A male executive who was terminated for sexual harassment sued his former employer on the grounds that his termination was without just cause as required by his written contract because he had not harassed anyone. Cotran v. Rollins Hudig Hall, Inc. The case went to the jury and the plaintiff recovered almost $2 million. On appeal, the employer objected to the jury instruction which required the jury to find plaintiff had actually harassed the accusers. Unless he had, the jury could not decide in favor of the employer.
The California Supreme Court disagreed with the lower court's ruling. Although the Court rejected the employer's contention that it need only show that it had acted in good faith in conducting the investigation and reaching the conclusion that the plaintiff had sexually harassed the accusers, the Court held the employer must have reached its conclusion "honestly after an appropriate investigation and for reasons that are not arbitrary or pretextual. " Thus, the Court required the employer to conduct a diligent investigation, act in good faith and have a basis for its decision which was neither arbitrary nor a cover-up. If these circumstances were present, the trier of fact could not find against the employer because it disagreed with the ultimate conclusion of the employer as to whether harassment had occurred.
Although the issue arose in the context of a claim by an alleged harasser for wrongful discharge, the same rule may apply to sexual harassment claims generally. In the case of a finding of no harassment by the investigator, i.e., employer, this could be particularly harmful to the victim's claim. The litigation would then presumably turn upon the adequacy of the investigation as much as the underlying merits of the harassment claim. On the other hand, a finding of harassment by the investigator would be helpful to the plaintiff victim. The California court, however, was careful to base its conclusion on the existence of a written employment contract which limited the grounds for termination to just cause. According to the court, the employer had not by such a contract transferred to the courts the determination of just cause, and the harassment investigation and the employer's conclusion were part of this determination.
It is not clear whether a New Jersey court would follow this rule in a statutory NJLAD cause of action. New Jersey courts have not addressed this specific issue yet. Indeed, in a traditional labor situation when a union contract required just cause for termination, the Appellate Division held many years ago that the jury must decide whether the discharged employee was actually "guilty". Jorgensen v. Pennsylvania Railroad Co., 38 N.J. Super 317 (1955). In addition, in the sexual harassment context, NJLAD does not allow a public employer to discipline an alleged harasser based upon only an investigation when the harasser's union contract requires a full-fledged disciplinary hearing. N.J. Turnpike Authority v. N.J. Turnpike Supervisors Ass'n, 143 N.J. 185 (1996).
