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Fisher & Phillips LLP

Kolstad, One Year Later -- 
What Constitutes "Good Faith Efforts"?

By Richard R. Meneghello, Esq.  email
Fisher & Phillips LLP 

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            In June 1999, the U.S. Supreme Court issued Kolstad v. American Dental Assoc.,119 S.Ct. 2118, which holds that employers may not be vicariously liable for punitive damages if they make “good faith efforts” to comply with anti-discrimination law.  In other words, although employers may be liable for compensatory and economic damages when their agents discriminate/harass/retaliate while acting in the course and scope of their employment, employers are not liable for punitive damages when these actions are contrary to the overall efforts made by the company to eradicate discrimination.  The Supreme Court explained that to do otherwise would reduce the incentive for employers to implement anti-discrimination programs and educate themselves about Title VII restrictions. 

            Instead, the Supreme Court ruled that: “... in the punitive damages context, an employer may not be vicariously liable for the discriminatory employment decision of managerial agents where these decisions are contrary to the employer’s good-faith efforts to comply with Title VII.”  However, the Court did not provide much detail regarding “good faith efforts,” leaving the issue largely to the lower courts to flesh out.  The Court did cite favorably to a Fourth Circuit Court of Appeals decision to outline examples of “good faith efforts” that would satisfy this test:  “In some cases, the existence of a written policy instituted in good faith has operated as a total bar to employer liability for punitive damages...,” citing Harris v. L&L Wings, 132 F.3d 978, 983-84 (4th Cir. 1997).

            This article examines many of the cases that have been decided by various circuit courts and district courts examining Kolstad’s “good faith efforts” analysis in order to determine what steps satisfy this new standard.

            Employers that have not made “good faith efforts”

             In the following cases, courts have examined the efforts made by employers to enforce anti-discrimination laws and have ruled that they were not sufficient enough to bar an award of punitive damages to a plaintiff.  In Deffenbaugh-Williams v. Wal-Mart, 188 F.3d 278 (5th Cir. 1999), the employer’s only contention regarding good faith efforts was that it “encouraged employees to contact higher management with grievances.”  In EEOC v. Wal-Mart, 187 F.3d 1241 (10th Cir. 1999), the only evidence admitted to support the good faith standard was a “generalized policy of equality and respect for the individual.”  In Miller v. Kenworth of Dothan, Inc., 82 F.Supp.2d 1299 (M.D.Ala. 2000), the employer’s anti-discrimination policies were too vague and did not include complaint mechanisms.  Moreover, they only prohibited sexual harassment, and did not include a section regarding race discrimination or other forms of illegal behavior.  These policies were not distributed uniformly to all employees, they were not posted in the workplace, and the several management employees – including the Company president – testified at trial that they had not read the policies.  None of these efforts was deemed sufficient to prevent plaintiffs from receiving punitive damage awards.

            Also see Burch v. La Petite Academy, ___ F.3d ___ (10th Cir. June 19, 2000), where the employer did not demonstrate that it educated its employees about its non-discrimination policies or that it adequately enforced these policies.

            Employers that made “efforts,” but not in “good faith”

            In the following two cases, the employers took steps to enforce anti-discrimination laws, but the courts examining the efforts did not believe the efforts were made in good faith.  In Copley v. Bax Global, 97 F.Supp.2d 1164 (S.D. Fla. 2000), the employer argued that its company-wide nondiscrimination policy satisfied the Kolstad standard.  However, the court was quick to note that it is not enough to simply have such a policy in place.  “For the good faith exception to apply, there must be a nondiscrimination policy both in words and in practice.”  The court looked at the fact that the employer’s highest-level management employees knowingly violated the policy, ruling that such actions by “policy-making” rank supervisors constituted bad faith.

            In Lowery v. Circuit City Stores, Inc., 206 F.3d 431 (4th Cir. 2000), the employer admitted a wealth of evidence in an attempt to demonstrate “good faith efforts” – training for all managers, anti-discrimination policies, equal employment opportunity policies, several complaint mechanisms (including a toll-free hotline), company-wide posters regarding policies and complaint mechanisms, and swift investigations when harassment was reported.  However, the court looked at these efforts with a skeptical judicial eye.  It noted that two top executives gave testimony indicating a racist attitude in terms of promotions.  The court also noted that management buried internal reports raising the possibility of racism, and several employees testified about the negative treatment they were subjected to after making complaints.  The court held, “...the sincerity of Circuit City’s commitment to a company-wide policy is [therefore] called into question...,” leading to a finding of bad faith efforts.

            Employers that have made “good faith efforts”

            In the following two cases, the courts determined that employers satisfied the Kolstad standard and barred the plaintiff from receiving punitive damages.  In Woodward v. Ameritech Mobile Communications, Inc., ___ F.Supp.2d ___ (S.D. Ind. March 20, 2000), plaintiff’s punitive damages prayer was dismissed on Summary Judgment due to the application of the Kolstad standard.  The employer established an anti-harassment policy that contained alternative complaint mechanisms, the policy was distributed to all employees, and all employees received training on the policy.  “In light of this evidence,” the court said, “a reasonable jury could not conclude that [the employer] failed to make a good faith effort to comply with the requirements of Title VII.” [NOTE - The court also points out that “good faith efforts” are proven because the plaintiff failed to follow the policy by not reporting the alleged harassment.  This point seems irrelevant under the Kolstad standard, where the plaintiff’s use or non-use of the reporting mechanisms should not come into play in this manner.  The court seems to be confusing Kolstad with the affirmative defense established in Faragher v. Boca Raton, 524 U.S. 775 (1998) which relies on a plaintiff’s unreasonable efforts to avail himself of the complaint mechanism.]

            In Bullman v. Penske Truck Leasing, ___ F.Supp.2d ___ (S.D. Ind. June 23, 2000), the employer had a policy prohibiting discrimination and providing a complaint mechanism.  The plaintiff complained about alleged harassment as the policy provided, and his complaints were met with a swift and timely investigation.  The court granted Summary Judgment against plaintiff’s underlying claims of discrimination and harassment.  Although the punitive damage issue was rendered moot by the decision, the court provided dictum in a footnote interpreting the Kolstad standard as it applied to the case at hand.  It stated that if it were forced to decide the punitive damages issue, “since [the employer] had an established harassment policy, which [plaintiff] eventually used to stop the alleged harassment, [plaintiff] has failed to meet his burden to hold [the employer] liable for punitive damages.”  This case is interesting because it suggests that it is the plaintiff’s responsibility to disprove the good faith nature of the employer’s efforts rather than the employer’s burden to prove it. 

            Pre-Kolstad trials, Post-Kolstad appeals

            Several published decisions involve situations where a trial was held prior to the publication of the Kolstad case, and the parties have since proceeded to the appellate stage with a new standard in place.  In Passantino v. Johnson & Johnson Consumer Products, Inc., 212 F.3d 493 (9th Cir. 2000), the court ruled that not enough evidence existed in the record to allow it to determine the “good faith” nature of the employer’s efforts, remanding the case to the district court for further proceedings.  It noted that the employer introduced evidence regarding its anti-discrimination policies, but stated, “[a]lthough the purpose of Title VII is served by rewarding employers who adopt anti-discrimination policies, it would be undermined if those policies were not implemented, and were allowed instead to serve only as a device to allow employers to escape punitive damages for the discriminatory activities of their managerial employees.”  The court held that the employer must also show that it adequately and fairly enforced the policies in order to satisfy the Kolstad standard.  A similar result occurred in Powell v. COBE, Inc., ___ F.3d. ___ (10th Cir. March 2, 2000), where the court remanded the issue for further fact-finding regarding the employer’s efforts.

            Contrast these decisions with Rubinstein v. Administrators of Tulane Educ. Fund, ___ F.3d ___, (5th Cir. July 6, 2000).  The employer argued on appeal that it did not have an opportunity to present evidence of good faith efforts at trial since the Kolstad standard had not yet been published, and asked for a remand.  The court rejected the employer’s appeal.  It held that the defendant was on notice that “faithfully-adhered-to non-discrimination policies” may negate punitive damage liability due to prior Fifth Circuit case law.  Thus, the employer could not claim the benefit of this newly clarified standard in requesting a new trial or other remedies.  “In short, Kolstad’s imputation holding was not such a sudden shift as to require, in fairness, giving the defendant an opportunity to present additional evidence.”

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