Avoiding Punitive Damages in Employment Discrimination Cases: A Practical Guide


Punitive damages are awarded to punish an offender, thereby discouraging similar conduct in the future. Where applicable, punitive damages in employment discrimination suits generally account for the overwhelming majority of the total damages awarded. Because punitive damages can be so devastating, the ability to nullify the threat of such damages in employment discrimination suits is of great significance. By implementing and enforcing anti-discrimination policies, employers can significantly lower the overall costs of discrimination suits.


It is unlawful to discriminate against any individual on the basis of a protected status such as race, color, religion, sex, national origin, or physical or mental disability in regard to hiring, termination, promotion, compensation, job training, or any other term, condition, or privilege of employment. Federal law prohibits both intentional discrimination and neutral job policies that disproportionately exclude members of a protected class and that are not job related.

Harassment is a Form of Discrimination

  • Discrimination includes not only the denial of normal privileges to an individual or a class of individuals but also conduct that constitutes harassment.
  • Workplace harassment consists of unwelcome conduct, whether verbal, visual, or physical that is based on an individual's protected status and that results in a tangible employment action or that is severe or pervasive enough that it unreasonably interferes with an individual's work performance or creates an intimidating, coercive, hostile, or offensive working environment.
  • The most common form of harassment is sexual harassment (whether the victim is of the same or opposite sex as the harasser), however, harassment based on any protected status is prohibited.

WHEN MAY COURTS AWARD PUNITIVE DAMAGES? — Kolstad v. American Dental Association

Under federal statute, a plaintiff may recover punitive damages if the discriminatory conduct was (1) intentional and (2) engaged in "with malice or with reckless indifference to the federally protected rights" of the plaintiff.

Discriminatory Conduct Need Not be "Egregious"

In Kolstad, the Court made it abundantly clear that discriminatory conduct need not be "egregious" to allow an award of punitive damages. It is not the seriousness of the actor's conduct that governs the applicability of punitive damages. Rather, courts must look to the intent of the actor to determine if punitive damages are appropriate. The Court noted that, to award punitive damages in a discrimination suit, it is enough that the employer "discriminate[s] in the face of a perceived risk that its actions will violate federal law." Therefore, if an employer engages in discriminatory conduct, with the belief that such conduct likely violates federal law, the victim may seek punitive damages in a resulting discrimination suit.

Employers May Take Preemptive Action to Safeguard Against Punitive Damages

In addition to deciding the standard for punitive damages, the Court held that an employer's good-faith effort to enforce an anti-discrimination policy in the workplace effectively shields the employer from punitive damages in employment discrimination suits. The Court recognized that it is inappropriate to punish employers that legitimately work to achieve a workplace free of discrimination. Therefore, if an employer can show that such good-faith efforts were made, the employer will not be held liable for punitive damages as a result of the discriminatory actions of an uncontrollable employee.

In the unfortunate case that an act of discrimination does transpire in the workplace, an employer may ensure that punitive damages are not assessed by providing sufficient evidence that a good-faith effort was made to enforce an anti-discrimination policy . Accordingly, the adoption of an anti-discrimination policy, the effective policing of the policy, and thorough and accurate documentation of all actions taken pursuant to the policy will save employers from significant costs associated with employment discrimination suits.


Avoiding punitive damages requires the adoption of an anti-discrimination policy, the means of effectively enforcing the policy, and thorough documentation to provide evidence that the policy is strictly enforced. In addition to providing protection from punitive damages, these measures will decrease the potential for discriminatory conduct in the workplace, thereby reducing the overall threat of employment discrimination suits.

Develop and Implement a Written Policy Prohibiting Discrimination in the Workplace

Designing and implementing a policy prohibiting discrimination on the basis of any protected status, such as race, color, religion, sex, national origin, or physical or mental disability, is the cornerstone of any program designed to eradicate harassment in the workplace.

A Well Designed Policy Will:

  • Be issued by the head of the organization to emphasize that the mandate against discrimination in the workplace comes from the highest levels of the organization.
  • Define what behavior constitutes discrimination in the workplace.
  • Emphasize the employer's commitment to preventing and dealing with discrimination in the workplace.
  • Require all supervisors and employees to report discriminatory conduct through an effective complaint reporting procedure that allows employees to circumvent their normal chain of command.
  • Have a procedure for promptly investigating all complaints of discrimination.
  • Emphasize that providing information or complaining about discriminatory conduct will be kept confidential, to the extent possible, and that the organization will not tolerate retaliation against any person who provides information or complains about discriminatory conduct.
  • Explain the consequences of engaging in discriminatory conduct.
  • Require prompt and effective remedial action to stop the discrimination.


Simply developing a written policy and posting it on bulletin boards and disseminating it in employee handbooks will not shield an employer from punitive damages. Rather, the policy must be communicated effectively to every employee in such a way that it emphasizes the importance of the policy and the organization's commitment to enforcing it. In addition, the policy must be communicated to all employees in such a way that no employee will be able to establish that he or she was unaware of the policy against discrimination in the workplace or the procedures for reporting, investigating, and remedying discrimination in the workplace.

Proper Notice of the Policy and Procedures

  • Prominently display the policy in the employee handbook and require employees to sign acknowledgment forms stating that the employee has received the handbook.
  • Post the policy and procedures in conspicuous places such as break-room bulletin boards.
  • Reissue the policy and procedures via interoffice mail or e-mail annually.

Education on the Policy and Procedures

  • Incorporate a review session of the policy and procedures in the orientation process for new employees. Stress the seriousness of the policy and the organization's commitment to enforcing it. Keep a written record of attendance and require that each employee sign an acknowledgment form stating that the employee attended a meeting to review the policy and procedures.
  • Provide ongoing education for existing employees through annual group meetings. Raise hypothetical situations to encourage open discussion on the organization's policy and procedures. Emphasize the organization's commitment to the policy and require the attendance of all employees.

Awareness Training for Supervisors

  • Require supervisors to attend periodic training on how to recognize and avoid discriminatory conduct as well as what actions to take if discriminatory conduct is reported or observed. Stress the role of supervisors under the policy and their role in maintaining an environment free of discrimination.
  • Emphasize the implications of violations of the policy and the importance of handling all allegations of discrimination promptly and seriously.


Although the initial steps of establishing a written anti-discrimination policy and educating employees about the policy make up the cornerstone of any program aimed at ridding discrimination in the workplace, these steps, alone, are not enough. Good faith efforts to enforce an antidiscrimination policy will include procedures for monitoring compliance with the policy as well as procedures for conducting thorough investigations.

Implement a Monitoring System to Ensure Compliance with the Policy

  • Give employees the opportunity to address any problems they might have concerning their performance reviews or working conditions. Encourage employees to discuss any problems with the Human Resources department or members of the Executive Committee or Board of Directors.
  • Initiate a program that allows subordinates to review the performance of their supervisors. In addition to providing employees with an additional forum to air their concerns, such evaluations may also provide defensive evidence to subsequent discrimination claims in situations where the employee consistently gave favorable reviews.
  • Conduct unscheduled spot-checks of work areas to uncover inappropriate conduct or displays.
  • Review all discharges, promotions, demotions, transfers, and salary changes by higher level management. Consistent review by at least one manager of successively higher authority than the person making the decision may prevent or uncover discriminatory conduct.
  • Conduct annual screening of hiring, terminations, promotions, demotions, transfers, and salary changes to detect unusual patterns that may uncover discriminatory practices.
  • Provide employees with a list of at least one male and female to whom they can provide information on a confidential basis.
  • Conduct exit interviews to uncover possible hidden problems. Without prompting employees to "create" problems to save their jobs, an exit interview should ask: "Are there any issues about your employment that we should know about before you leave?"

Establish Procedures for Conducting Prompt and Adequate Investigations

Regardless of the results of the investigation, the promptness and adequacy of the investigation (and the effectiveness of the remedial measures) will play a crucial role in whether or not the organization will be subject to punitive damages in employment discrimination suits.

Some Guiding Principles:

  • Promptly investigate all allegations of discrimination within a few days of receiving any information regarding discriminatory conduct.
  • Conduct thorough investigations - even if the alleged victim or the person providing the information requests that nothing be done.
  • Do not require formal written allegations. Complaints of discriminatory conduct can take many forms and may be oral or written.
  • If a supervisor is approached about allegations of harassment, the supervisor should hold the conversation in a private area away from other employees. The supervisor should take detailed notes of the meeting and turn over the notes and investigation to Human Resources.
  • Open an investigation file for all investigations. Maintain detailed notes from interviews and keep them and other documents in the file.
  • Take care to keep the investigation confidential and store investigation files in a secure location.
  • Review written records regarding prior allegations. Determine whether the alleged victim made allegations in the past and the results of the investigation. Determine whether prior complaints were made against the individual that allegedly engaged in discriminatory conduct and the outcome of any investigation.
  • Interview all potential witnesses for any relevant information. Inform the witness that the investigation is confidential and that the witness is not permitted to talk about the interviews with others while the investigation is ongoing.
  • Interview the individual that allegedly engaged in discriminatory conduct. Give the individual the opportunity to respond to all charges and warn him or her that no acts of retaliation against the alleged victim or witnesses will be tolerated. Consider interviewing the individual before conducting interviews of other witnesses.
  • Consider taking intermediate corrective action during the investigation, such as placing the individual that allegedly engaged in discriminatory conduct on a leave of absence pending the outcome of the investigation.
  • Take thorough notes of all interviews. The notes should at least indicate who was present, what was discussed, further action to be taken, how and why resolution was reached, and any remedial measures discussed or taken.

Determining Who will Conduct the Investigation

The determination of who will conduct the investigation should be made on a case-by-case basis. Rarely should the investigation be conducted by anyone who works directly with the alleged victim(s) or alleged harasser(s). Rather, proper choices for investigator(s) are usually:

  • human resource professionals
  • members of a harassment committee or task force
  • in-house counsel
  • outside counsel
  • outside investigators

The investigator should have credibility and have the trust of employees involved in the investigation. They should not have even the appearance of having a vested interest in the investigation and must remain neutral and objective throughout the investigation. The use of an outside investigator or outside counsel has the advantage that employees are less likely to believe that the investigator will have a vested interest in the investigation. The investigator must be competent and must know how to conduct an investigation. When possible, it is advisable to have two investigators (one male and one female) interviewing witnesses to corroborate their testimony.

Interviewing the Alleged Victim

  • Put the alleged victim at ease and give him or her credit for coming forward with allegations.
  • Assure the alleged victim that the organization takes all allegations of discriminatory conduct seriously, that it will conduct a full and prompt investigation, and that it will take appropriate and effective remedial action.
  • Assure the alleged victim that the organization prohibits retaliation against individuals who report discriminatory conduct; but that if the employee feels retaliated against, the employee has an obligation to report the retaliation in order for the organization to investigate and take prompt remedial action.
  • Assure the alleged victim that reasonable steps will be taken to maintain the confidentiality of information, to the extent that the investigation permits, but that the employee's identity and allegations will most likely be provided to the individual that allegedly engaged in the discriminatory conduct or others as part of the investigation or during legal proceedings.
  • Don't make any specific promises or make any judgments (pro or con) at this initial stage.
  • The interviewer(s) should take detailed written notes.
  • Consider reducing the complaint to writing in a form that is acceptable to the alleged victim. Be careful not to require the alleged victim to sign a written complaint before the organization will conduct an investigation or take remedial action. If litigation should ensue, it will be helpful to have a written record that is signed by the alleged victim detailing the exact nature of his or her complaint.


To avoid punitive damages, an employer must present evidence that the employer has made a good faith effort to enforce an antidiscrimination policy in the workplace. It is, therefore, essential that the employer preserves evaluations, acknowledgement forms, notes and documents related to investigations, records of complaints, and all other documents related to the implementation of the policy and procedures. Furthermore, employers should keep records of all actions taken in its effort to maintain compliance with the policy, including actions such as exit interviews, spot-checks, and screenings of employment decisions.

Thorough documentation has advantages beyond simply protecting the employer from punitive damages. Proper documentation will increase the effectiveness of investigations by providing a history of prior allegations and investigations regarding particular employees.

Without proper documentation, however, it will be much more difficult to prove that undocumented efforts were made. Save the organization time, effort, and money by maintaining thorough and timely documentation.

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