by Jackson Lewis

Average Punitive Damage Award is $2.7 Million. According to a recent survey of punitive damages awards in the United States, the American Bar Association reported that the average amount of such an award is $2.7 million. As the number of employment law cases litigated in federal and state courts continues to skyrocket, the U. S. Supreme Court has issued several major employment law decisions reigning in the potential for liability for employers making good faith efforts to prevent workplace discrimination.

Supreme Court Rules no Punitive Damages Against Employers if Good Faith Efforts to Prevent Workplace Discrimination. Marking one of the most critical employment law decisions for employers this decade, the Court once again has recognized the good faith efforts of employers to prevent workplace discrimination, this time by refusing to impose punitive damages when a supervisor violates company fair employment policies and practices. In Kolstad v. American Dental Association, the Court ruled employers may be charged with punitive damages for intentional discrimination by managers and supervisors in violation of Title VII of the Civil Rights Act of 1964. However, the Court further held punitive damages for such unlawful conduct may be avoided if the employer has made good faith efforts to prevent workplace discrimination.

Emphasizing that the purposes underlying Title VII encourage employer efforts to prevent unlawful discrimination, the Court said that dissuading employers from implementing anti-discrimination programs or policies by imposing punitive damages when supervisors' actions contravene those policies "is directly contrary to the purposes underlying Title VII." This reasoning is similar to that adopted by the Court last year in its landmark decisions on sexual harassment in Burlington Industries, Inc. v. Ellerth and Faragher v. City of Boca Raton.

The June 22 Kolstad opinion written by Justice Sandra Day O'Connor made clear that punitive damage liability for employment decisions made with "malice" and "reckless indifference" to Title VII hinges on traditional legal concepts of attributing the acts of "agents" to their principals. Employers are liable for punitive damages for the intentional acts of their agents under this standard. However, consistent with its Burlington Industries and Faragher decisions, the Court said it was compelled to modify those principles to avoid undermining the objectives of Title VII not only to provide redress but to avoid harm. Noting that with regard to sexual harassment Title VII encourages the development of anti-harassment policies and effective grievance mechanisms, the Court concluded, "the purposes underlying Title VII are similarly advanced where employers are encouraged to adopt antidiscrimination policies and to educate their personnel on Title VII's prohibitions."

Amicus Curiae Brief Filed by Jackson Lewis in Kolstad on behalf of SHRM. Jackson Lewis filed an amicus curiae brief in the Kolstad case on behalf of the Society for Human Resource Management. The brief clearly influenced the Court’s decision. In it SHRM argued "employers that . . . make sincere, good faith efforts to avoid intentional discrimination should be given ‘credit’ . . . [in the] form of insulation from punitive damages . . ."

This decision marks an evolution in employment discrimination law by acknowledging the beneficial effect of employer efforts to prevent job discrimination in accomplishing one of Title VII's objectives -- motivating employers to detect and deter unlawful discrimination. According to Jackson Lewis attorney D. Gregory Valenza, who prepared the brief on behalf of SHRM, "the Court has made it clear that employers may avoid liability for punitive damages by implementing effective programs to prevent unlawful discrimination and harassment."

The implications of this decision are far reaching. It gives the corporate community an even greater incentive to engage in the kind of preventive practices advised by Jackson Lewis to avoid liability. According to Jackson Lewis partner Michael J. Lotito, "Kolstad's defense to a punitive damage claim essentially gives employers a safe harbor to prevent punitive damage liability. As a result, preventive practices no longer just make good business sense, but they will ultimately become a matter of sound corporate governance. Any company which does not embrace the spirit of the Supreme Court’s decision will act at its peril."

We are pleased the court has ruled that employers should not be held liable for punitive damages where, despite their best training and prevention efforts, a manager engages in discriminatory action," said Sue Meisinger, Senior Vice President of SHRM. "This decision affirms employers' efforts to adopt nondiscrimination policies and to educate their workforce on Title VII's prohibitions." [Kolstad v. American Dental Association, No. 98-208, U. S. Supreme Court, June 22, 1999. ]