Employers Must Educate Their Employees About Discrimination Laws to Avoid Punitive Damages

Employers cheered when the Supreme Court held that their good-faith efforts to comply with the federal anti-discrimination laws can preclude the imposition of punitive damages. Yet, the June 22, 1999 decision in Kolstad v. American Dental Association, 119 S. Ct. 2118, was both good news and bad news. The good news was that employers who could demonstrate they had indeed made such good-faith compliance efforts could escape vicarious liability for punitive damages even though their “managerial agents” had made discriminatory workplace decisions contrary to employer policies. The bad news, of course, was that employers who could not show they had made good-faith efforts to comply with anti-discrimination laws thereby left their corporate treasuries subject to punitive damages awards.

The keywords for employers are education followed immediately by more education. Training employees, particularly supervisors, in the requirements of the various anti-discrimination laws must be a paramount priority for all companies. Employers who fail to heed this clarion call will have sleepless nights as juries ponder how many zeroes they should add to a punitive damage award. Employment practices liability insurance will not rescue an inattentive employer from this dilemma since it does not cover punitive damage awards.

Employment Law Alert readers who want a testimonial about the extreme and immediate importance of corporate programs educating and training company personnel concerning the various anti-discrimination laws only have to ask Wal-Mart Stores. Two federal appeals courts, in decisions only eight days apart, held Wal-Mart must pay punitive damages to successful discrimination claimants because it had not done a good enough job in educating its personnel, especially its managers, about the requirements of Title VII and the ADA. EEOC v. Wal-Mart Stores, Inc., 1999 U.S. App. LEXIS 20015 (10th Cir., August 23, 1999) and Deffenbaugh-Williams v. Wal-Mart Stores, 1999 U.S. App. LEXIS 20824 (5th Cir., August 31, 1999). Although both cases involved adverse jury verdicts rendered before Kolstad was decided, both appeals courts held the record evidence before them was sufficient to weigh the sufficiency of Wal-Mart’s good-faith compliance efforts. In neither case was the jury given a specific Kolstad-type instruction on punitive damages. Such a limiting jury instruction became essential for employers as soon as Kolstad was decided.

The Fifth Circuit decision involved a racial discrimination claim and an adverse jury verdict requiring reinstatement and assessing Wal-Mart with $19,000 in compensatory damages and $100,000 in punitive damages. The Wal-Mart district manager who had supervisory authority over the successful claimant and had unlawfully terminated her on his own authority managed a total of six stores. He was clearly a managerial agent under Kolstad. However, the only evidence Wal-Mart submitted on the critical good-faith-effort issue was that it encouraged its employees to contact higher management whenever they had grievances. There was no evidence of published or disseminated anti-discrimination policies. There was also no evidence this district manager had received education or training concerning the prohibitions under Title VII. Therefore, the Fifth Circuit held Wal-Mart had not shown it had exercised “good faith in requiring its managers to obey Title VII.” The Court pointedly noted there was no evidence of any specific Title VII efforts. It did reduce the punitive damage award from $100,000 to $75,000.

The Tenth Circuit decision involved a hearing-impaired ADA claimant, Eduardo Amaro. He was required to attend a mandatory training session but left the session because no sign language interpreter was present. His supervisor, Kim Wiggins, ordered Amaro to return to the session pointing out a fellow employee could “finger spell” for him. Amaro rejected this alternative suggestion. The very next day he was transferred to a janitorial job. Amaro questioned the transfer and again requested an interpreter, which Wiggins denied. The next day Amaro and Wiggins met with the store manager, Robert Dunn, to discuss this transfer to a new job. No interpreter was present once again. Despite Amaro’s protests, Dunn suspended him for not reporting to the janitor’s job. A week later, Dunn and two other managers met with Amaro, this time in the presence of an interpreter. Dunn insisted Amaro accept the transfer. Amaro claimed he was being given a dead-end job because he refused to attend the training session. He again refused the transfer, whereupon Dunn immediately fired him.

The jury awarded Amaro $3,527 in compensatory damages and $75,000 in punitive damages. The district court then awarded Amaro $41,063 for attorneys’ fees. The compensatory damage award was low because Wal-Mart rehired Amaro four months after his termination. The Tenth Circuit upheld the jury verdict in its entirety and affirmed the attorneys’ fee award. Wal-Mart’s termination of Eduardo Amaro thus cost it $119,590 plus its own attorneys’ fees defending against the EEOC’s suit, the trial and the appeal.

The Tenth Circuit made two significant rulings. Wal-Mart argued that neither Dunn nor Wiggins were managerial agents with sufficient authority for the imputation to the company of vicarious liability for punitive damages for their actions. Dunn was the store manager and made hiring and firing decisions including, of course, the decision to fire Amaro. Wiggins, an assistant manager for seven years, could suspend subordinates, such as Amaro, on her own and could recommend hiring/firing decisions to others, such as Dunn. The Tenth Circuit held both Dunn and Wiggins “occupied managerial positions” for purposes of imputing vicarious liability to Wal-Mart for their discriminatory actions. Wiggins, the assistant manger, was a close question. Unfortunately for Wal-Mart, the Tenth Circuit is one of the circuits that agree with the EEOC position that the power to recommend hiring, firing, discipline or promotion is an indicium of supervisory or managerial authority. E.g., EEOC v. Gaddis, 733 F.2d 1373 (10th Cir. 1984).

The second significant ruling was that Wal-Mart’s good-faith efforts to comply with the ADA were insufficient under the new Kolstad standard. Wiggins had been an assistant manager for seven years when Amaro was fired. In her trial testimony, she admitted that it was only after her deposition in the case, itself some three years after Amaro’s termination, that she became aware there was a law requiring employers to make reasonable accommodations to enable qualified employees with disabilities to do their jobs. She also testified at the trial that, to that point, she had received no training about disability discrimination. The store’s personnel manager, Lonnie Quintana, gave equally damaging trial testimony. She had not received any training either in employment discrimination or in the ADA requirements during her seven years as a manager. Indeed, although she was the individual responsible for conducting training at the Wal-Mart store where Amaro worked, there had never been any training there and she admitted she had never discussed the ADA with any employee under her supervision. Further buttressing the EEOC’s case was the fact that Quintana, the store’s personnel manager, also testified she had never received a copy of Wal-Mart’s special ADA handbook.

Wal-Mart clearly had made some efforts to educate its employees, particularly its managers, about the ADA. It prepared and distributed a special ADA handbook. Unfortunately, reminiscent of the anti-harassment policy that never made its way from City Hall to the beach where Beth Faragher worked as a lifeguard, this special ADA handbook never found its way to Ms. Quintana in New Mexico. Some Wal-Mart managers had received some training about the ADA. The unnamed store manager who ultimately approved Dunn’s suspension of Amaro testified at trial that he was familiar with the ADA’s accommodation requirements and that law’s prohibitions against discrimination and retaliation in the workplace. This testimony was cited by the Tenth Circuit as supporting the jury’s verdict that Wal-Mart had “intentionally discriminated against Amaro in the face of a perceived risk that its action would violate federal law.”

Wal-Mart had issued a special ADA handbook. However, the training and education given to its store managers and assistant managers in New Mexico was either minimally limited to top managers or non-existent. One of the EEOC’s requests for relief was a court order requiring Wal-Mart to train its supervisors about the requirements of the ADA. That request was denied, presumably on the sound assumption that neither Wal-Mart nor any other employer needed a court order after Kolstad to institute training and education programs for employees and supervisors.

Wal-Mart also argued its written company-wide policy against discrimination should rule out punitive damages. The Tenth Circuit held that, while the adoption of an anti-discrimination policy was “important” in deciding whether to insulate a company from vicarious punitive damages liability, “that alone is not enough.” The Court said its review of the pre-Kolstad record “leaves us unconvinced that Wal-Mart made a good-faith effort to educate its employees about the ADA’s prohibitions.” Wal-Mart had only “a generalized policy of equality and respect for the individual.” It did not have “an implemented good-faith policy of educating employees on the [ADA’s] accommodation and nondiscrimination requirements.” The Court faulted Wal-Mart for “a broad failure to educate its employees, especially its supervisors, on the requirements of the ADA, and to prevent discrimination in the workplace.”

What should employers do to gain protection from vicarious punitive damage liability for the discriminatory conduct of their managerial agents? Obviously, training and education programs must be introduced and expanded throughout the far reaches of all companies. They must be all-inclusive programs as well. Workplace harassment and diversity programs are important but Wal-Mart is paying punitive damages because it did not educate its employees about the requirements and prohibitions applicable under Title VII and the ADA. Education and training programs are the essential steps that implement general anti-discrimination policies and bring those policies home to the front-line supervisor and his/her subordinates. You can’t have too much training or education but, as Wal-Mart found out in these two cases, you can have too little.