Last summer in the case of Kolstad v. American Dental Association, the U.S. Supreme Court stated that a company will be insulated from punitive damages when a rogue manager engages in sexual harassment despite the company's good-faith efforts to comply with Title VII. It now appears, however, that the "good-faith" rule of law has an exception. In the recent case of Deters v. Equifax Credit Information Services, Inc., the Tenth Circuit Court of Appeals, which reviews cases from Utah and surrounding states, upheld a $295,000 punitive damages award against Equifax based upon the misconduct of an employee who had been specifically designated by the company in its sexual harassment policy as one of its final representatives to implement the policy and to process sexual harassment complaints.
At the trial of her Title VII suit, the Deters plaintiff testified she had been regularly subjected by her supervisors and co-workers to vulgar language, sexually-oriented jokes, leering, unwanted touching, staring, and off-hour phone calls. She also testified that she had complained repeatedly to Equifax's appointed human resources representative to no avail. Indeed, he told her that she needed to remember that the people that she was complaining about were the revenue-producers, and she was not, and told her she needed to tolerate the name calling and language and needed to ignore the groping.
On appeal, Equifax asserted that its human resources representative's disregard of the plaintiff's complaints was merely negligent, not reckless or malicious. Equifax also argued that it should not be liable for punitive damages because only the rogue human resources representative, and not others in Equifax management, had notice of the extent of the sexual harassment as described by the plaintiff at trial. The Court of Appeals disagreed. Stating that the malice or recklessness needed for a punitive damages award "refer not to the egregiousness of the employer's conduct, but rather to the employer's knowledge that it may be acting in violation of federal law," the Court held that "recklessness and malice are to be inferred when a manager responsible for setting or enforcing policy in this area of discrimination does not respond to complaints, despite knowledge of serious harassment." According to the Court, "When a company specifically designates a particular employee within the company as a final person responsible for enforcing the company's policy against discrimination, then by the company's own designation, information provided to such an employee is knowledge to the company." In such a case, the issue changes from one of an employer's vicarious liability for the actions of a rogue manager, to an issue of the employer's direct liability for its own actions, rendering the defense of the employer's good-faith efforts to comply with Title VII inapplicable.