Labor & Employment Law Daily AutoZone not vicariously liable for punitive damages on employee’s Title VII claim under managerial-capacity theory
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Friday, May 15, 2020

AutoZone not vicariously liable for punitive damages on employee’s Title VII claim under managerial-capacity theory

By Kathleen Kapusta, J.D.

Although a reasonable jury could find that AutoZone was liable for compensatory damages, its liability for punitive damages was an entirely different issue, the court determined, noting that, at best, the managers were negligent and not recklessly indifferent.

Reversing a jury award in part to a former AutoZone employee who alleged the company was vicariously liable for punitive damages based on the conduct of three managers, whom he claimed failed to stop his coworker’s sexually harassing conduct, the Fourth Circuit found he failed to show the managers themselves engaged in intentional discrimination sufficient to impute liability under a managerial-capacity theory. Nor was he entitled to punitive damages on his intentional infliction of emotional distress claim as there was no evidence the managers consciously disregarded his rights. The court, however, agreeing with the court below, found that the employee’s Title VII and IIED compensatory damages awards did not constitute an impermissible double recovery (Ward v. AutoZoners, LLC, May 11, 2020, Floyd, H.).

Give her what she wants. Several months after the employee began working for AutoZone, his newly hired female coworker began sexually harassing him. Not only did she make sexually offensive comments, she groped him on multiple occasions, ignoring his repeated requests to stop. The commercial sales manager, who directly managed both employees, was aware of the harassment but did nothing to stop it, the employee contended. Indeed, he claimed, at one point, the commercial sales manager told him “Well, maybe if you’ll give her what she wants, she’ll leave you alone.”

You’re the man. And although AutoZone had a written sexual harassment policy, handbooks describing the policy were not available at the store, nor was there any in-person training on the policy. Getting nowhere with the commercial sales manager, the employee also complained to the store manager, who told the coworker to stop. At the same time, however, he told the employee to “knock it off.” The store manager also told the district manager, who according to the store manager, did nothing. As a result, the employee claimed, he quit. Three days later, he met with the district manager to discuss possibly returning but was told the whole thing was his fault because he was “a man” and “should have been able to . . . prevent” the coworker’s behavior.

Lower court proceedings. The employee subsequently sued, asserting claims under Title VII and state law, most of which went to trial. A jury found AutoZone liable for the sexual harassment and IIED claims, awarding him $100,000 in compensatory damages and $600,000 in punitive damages for the Title VII sexual harassment claim and $150,000 in compensatory damages and $60,000 in punitive damages for his IIED claim. The district court reduced the punitive damages award to $200,000 so that the total Title VII damages would fall within the mandatory $300,000 limit. As to AutoZone’s request to vacate the $150,000 compensatory damages award for the employee’s IIED claim, the court found no impermissible double recovery.

Title VII punitive damages award. On appeal, AutoZone first challenged the award of punitive damages on the employee’s Title VII claim. The employee argued that AutoZone was vicariously liable for punitive damages based on the conduct of the commercial sales, store, and district managers, whom he claimed, served in a managerial capacity, were acting within the scope of their employment, and acted with malice and reckless indifference. Turing first to the district manager, the appeals court noted that he oversaw 12 stores and had authority to approve promotions and transfer employees, which was enough for a jury to find he served in a managerial capacity.

Likewise, there was sufficient evidence to find the store manager also served in a managerial capacity as he had the authority to hire and discipline employees and was responsible for enforcing company policies within the store. As for the commercial sales manager, however, she was primarily responsible for “taking care of the customer” and could only make hiring and staffing recommendations. While the employee and coworker reported to her in some ways, there was not enough evidence to find she served in a managerial capacity.

Malice or reckless indifference. As to whether the store and district manages engaged in intentional discrimination with malice or reckless indifference to the employee’s federally protected rights, he relied on their failure to sufficiently respond to his complaints and their awareness of federal antidiscrimination laws. However, said the court, he overlooked the fact that he had to first show the managers themselves engaged in intentional discrimination in order to hold AutoZone vicariously liable for punitive damages. “There does not appear to be any dispute about this requirement,” the court explained.

While the employee presented evidence his coworker engaged in sexually harassing conduct, she was not a manager. And to the extent he sought to “mix and match” the coworker’s discriminatory conduct with the managers’ managerial capacity, there was no support for such a theory under the Supreme Court’s Kolstad v. Am. Dental Ass’n decision or the Fourth Circuit’s Lowery v. Circuit City Stores, Inc., decision. “Kolstad and Lowery,” explained the court, “support an employer’s vicarious liability for punitive liability when the manager carries out the intentional discrimination.

And here, the evidence at most showed that the store and district managers failed to adequately respond to the coworker’s conduct. The uncontradicted evidence established that the store manager spoke with the coworker after the employee complained, telling her he wanted her to stop. He also reported her conduct to the district manager, who ordered that the two employees be separated. Noting that at best, they were negligent and not recklessly indifferent, the court found that while a jury could have determined that their actions were inadequate, “there was simply not enough evidence” to show they acted with “subjective appreciation” of the inadequacy.

Extraordinary remedy. “Punitive damages are an extraordinary remedy,” the court emphasized, and imposing “punitive damages in the case of the mere knowledge of [the coworker’s] conduct and negligent failure to act would conflate Title VII’s carefully crafted standards for liability for compensatory damages and punitive damages, thereby imputing liability to an employer in virtually every hostile work environment case based on a theory of negligence.” Accordingly, the employee was not entitled to punitive damages on his Title VII claim.

IIED claim. Nor was the employee entitled to punitive damages for his IIED claim, said the court, noting that to recover punitive damages in North Carolina, a claimant must prove the existence of an aggravating factor—fraud, malice, or willful or wanton conduct—by clear and convincing evidence. Further, punitive damages may only be awarded against a corporation if “the officers, directors, or managers of the corporation participated in or condoned the conduct constituting the aggravating factor giving rise to punitive damages.” Noting that the burden of proof for proving punitive damages under North Carolina law is higher than the burden for proving punitive damages under Title VII, the court found that under North Carolina’s standard, there was no sufficient evidentiary basis for a reasonable jury to conclude that either manager participated in or condoned willful or wanton conduct.

Duplicative recovery. Finally, the court addressed AutoZone’s contention that the district court erred in denying its motion to alter or amend the judgment because the employee’s Title VII compensatory damages were duplicative of his IIED compensatory damages. AutoZone argued that his Title VII and IIED claims arose from the same injury—the employee alleged that AutoZone knowingly permitted a sexually hostile work environment. Thus, the company asserted, his compensatory damages constituted a double recovery as both claims were meant to compensate for his emotional distress.

Finding the verdict reconcilable, the court pointed out that in denying AutoZone’s motion, the district court explained the different standards for awarding compensatory damages under Title VII and North Carolina law. Under the former, the jury was instructed to award nominal or actual damages depending on the proof of physical or emotional injury, the latter of which was referred to as “emotional distress.” Under the latter, however, the jury was instructed that conduct must have “in fact caused severe emotional distress.” Because the verdict did not clarify whether the jury awarded compensatory damages only for emotional distress, the court found it reasonable to infer the jury chose to compensate the employee for his physical injuries (like his heart problems) under one claim and to compensate him for his emotional injuries (like his anxiety and stress) under another. Thus, the district court did not abuse its discretion in denying AutoZone’s motion to alter or amend the judgment.

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