In the case of Kolstad v. American Dental Association, the United States Supreme Court, on June 22, 1999, set the standard for punitive damages in cases filed under Title VII of the Civil Rights Act of 1964 (Title VII). The employee in this case alleged she was discriminated against based on her gender in being denied a promotion that was given to a white male coworker. She alleged that the coworker was "preselected" for the job, and that the employer tailored the job description to the qualifications of the coworker. She also alleged that a high-level manager told sexually offensive jokes and made derogatory remarks about prominent professional women.
The Supreme Court addressed the circumstances under which an employer can be held liable for punitive damages under Title VII. In addressing punitive damages, Title VII provides that an employee can recover punitive damages if the employer acts "with malice or with reckless indifference to the federally protected rights of an aggrieved individual." The Court rejected an interpretation of the statute that would have required the employee to show that the conduct was independently "egregious." The Court did, however, expressly recognize that Title VII provides a two-tiered structure under which an employee must meet a certain level of proof to be awarded compensatory damages and a certain higher level of proof to be awarded punitive damages. The Court held that the terms "malice" and "reckless indifference" focus on the actor's state of mind, and that an employee does not have to show egregious or outrageous behavior to recover punitive damages. Awarding punitive damages depends on the evil motive of the wrongdoer and looks not to whether the actor knew the acts were discriminatory, but whether the actor knew the acts were in violation of federally protected rights. The Court did state that evidence of egregious or outrageous behavior can be evidence of evil motive, but that it is not necessary to recover punitive damages. In describing situations in which an award of punitive damages might not be warranted, the Court specifically stated:
There will be circumstances where intentional discrimination does not give rise to punitive damages liability under this standard. In some instances, the employer may simply be unaware of the relevant federal prohibition. There will be cases, moreover, in which the employer discriminates with the distinct belief that its discrimination is lawful. The underlying theory of discrimination may be novel or otherwise poorly recognized, or an employer may reasonably believe that its discrimination satisfies a bona fide occupational qualification defense on other statutory exception to liability.
The Court further discussed when the acts of a supervisor could expose the employer to liability for punitive damages, rejecting a standard under which an employer would always be automatically liable for the acts of its managers. Instead, the Court held that if an employer engages in good faith efforts to comply with Title VII, then the employer has not acted in reckless disregard of federally protected rights. The Court specifically held that an employer will not be liable for the acts of a manager when the acts of the manager "are contrary to the employer's 'good faith efforts to comply with Title VII.' " It adopted this standard because holding employers liable for punitive damages even when they make good faith efforts to comply with Title VII "would reduce the incentive for employers to implement anti-discrimination programs." The Court suggested that establishing and implementing written policies prohibiting discrimination could be used to show good faith efforts were made.
This is the second decision in which the Supreme Court emphasizes the importance of having and implementing policies prohibiting discrimination in the workplace. The Court made similar remarks in its decisions in Burlington Industries, Inc. v. Ellerth (524 U.S. 742 ), and Faragher v. City of Boca Raton (524 U.S. 775 ), addressing the standard under which an employer is liable for the acts of a supervisor in a sexual harassment case. Under the Supreme Court's most recent decision in the Kolstad case, developing polices against workplace discrimination, distributing the policies, and training supervisors affected by these policies can be the key to avoiding liability for punitive damages based on the acts of supervisors. If they have not already done so, employers should take this opportunity to examine their policies and practices and revise them to take the fullest advantage of the recent Supreme Court decisions.