Employment Law Daily Question on whether employer had constructive notice of client’s harassment revives claim
Monday, August 7, 2017

Question on whether employer had constructive notice of client’s harassment revives claim

By Kathleen Kapusta, J.D.

Reviving in part the federal and state law sexual harassment claims of an employee whose alleged harasser worked for her employer’s client, the Seventh Circuit found a fact question as to whether her employer had constructive notice of the harassment. Observing that the employer was accountable to the standard of care it created for itself, the court found it had constructive notice of the harassment through a low level “supervisor” who witnessed the harassment on one occasion and was required by the employee handbook to report the conduct. Further, it may have received notice through an operations manager even though the employee testified that she didn’t know what he witnessed. The court affirmed, however, the dismissal of her claims against the harasser and her employer’s client. Judge Manion dissented in part (Nischan v. Stratosphere Quality, LLC, August 2, 2017, Kanne, M.).

Hired as a car inspector by Stratosphere, a company that provides third-party inspection and quality control services to car manufacturers, the employee was promoted to project supervisor a month later. One of the company’s major clients was Chrysler and her job required frequent contact with a Chrysler employee, whom she alleged relentlessly sexually harassed her. She alleged that on one occasion, the coworker rubbed his erect penis on her in a work trailer in front of a Stratosphere operations manager and project supervisor. She ran out of the trailer crying and the project manager came out to console her.

Rebuffed. Three months after she was hired, the coworker allegedly propositioned her and she loudly rebuffed his advance. Two days later, the employee, who had been having performance issues, made a serious mistake and the coworker demanded that she be removed from the car lot. Stratosphere complied with the request two days later. Although it did not fire her, telling her instead to see if there was work at another lot, she chose to file for unemployment.

Lower court proceedings. She then sued Stratosphere, Chrysler, and the coworker, asserting claims of sexual harassment, sex discrimination, retaliation, intentional infliction of emotional distress, and battery. After partially granting the defendants’ motion to dismiss, the district court reinstated the state-law sexual harassment claim against the coworker. It later granted their motion for summary judgment, dismissing the remaining Title VII and state-law claims and relinquishing jurisdiction over the battery claims against Chrysler and the coworker.

Chrysler not joint employer. On appeal, the Seventh Circuit noted that as to the employee’s sexual harassment claim, the only issue before it was whether there was a basis for employer liability. While the employee argued that Chrysler had sufficient authority over her to be considered a joint employer, the court disagreed. Applying a five-factor test, the court first rejected her contention that Chrysler had the power to fire her and that through the coworker, it used that power to get her fired from the lot. The coworker, however, could only provide input and recommendations regarding Stratosphere’s employee, the court observed, noting that Stratosphere had not obligation to comply with the requests.

Although it did remove the employee at the coworker’s request—after two days and multiple demands—it is very common, observed the court, for service providers to follow their clients’ wishes on personnel decisions. And while there was some evidence the coworker supervised and trained the employee, most of that responsibility belonged to Stratosphere. As to the second factor, she learned her inspection skills before applying Stratosphere and received additional training from Stratosphere, not Chrysler. Turning to the final three factors, the court pointed out that Stratosphere provided her with the necessary tools and equipment; paid her and gave her benefits; and assigned her to the lot and had no expectation that she would leave and work for Chrysler once its contract with Chrysler terminated. Because these factors showed Chrysler was not her employer, her sexual harassment claim against it failed.

Coworker’s liability. Although the employee also challenged the dismissal of her Illinois Human Rights Act claim against the coworker, it failed for the same reason—Chrysler was not her employer.

Stratosphere’s liability. Addressing the employee’s sexual harassment claim against Stratosphere, the court first rejected her contention that the coworker was her supervisor, pointing out again that he had no power to affect the terms and conditions of her employment. Thus, Stratosphere was not strictly liable under Title VII. Nor was it strictly liable under the IHRA, said the court, finding no authority suggesting that a nonemployee could be a supervisor for purposes of imposing strict liability on an employer.

Negligence. Under both laws, however, an employer is liable for the harassment of a nonemployee or nonsupervisory employee if it was “negligent either in discovering or remedying the harassment.” While the employee made no formal complaint about the harassment until after she was removed from the lot, the court found evidence showing Stratosphere had constructive notice. The employee testified that when the coworker rubbed against her in the work trailer the operations manager and project supervisor were present and the project supervisor consoled her after the incident.

Although the project supervisor held the same low-level supervisor title as the employee, she was required by Stratosphere’s employee handbook to immediately report the incident, said the court, finding that because its rules required her to report the sexual harassment that she observed, Stratosphere had constructive notice of the harassment.

Further, Stratosphere received notice through the operations manager, who also had the duty to report any observed sexual harassment. While the employee testified in her deposition that she didn’t know what they witnessed, and he denied witnessing any sexual harassment, she also testified that he knew about the harassment and qualified her “I don’t know what they witnessed” statement by saying that “well, actually, yes,” because the project supervisor was aware of what happened. This qualification, said the court, arguably neutralized her admission.

In any event, the court observed, deponents often misspeak and make mistakes. Construing the evidence in her favor, the court found that his knowledge of the harassment was a fact issue for the jury to resolve at trial.

Partial dissent. While Judge Manion agreed with the court’s opinion on all other issues, he not agree that the employee alleged sufficient facts to sustain a finding that Stratosphere was on constructive notice that she was being sexually harassed by her coworker. Observing that the case “stands or falls” on the incident in the trailer, the dissent argued that the project supervisor’s “general duty to report sexual harassment cannot be assumed on appeal to apply to non-Stratosphere employees” such as the coworker.

The argument that her witnessing the assault constituted constructive notice to Stratosphere was raised for the first time on appeal, and was thus waived, the judge contended that “as the district court makes clear,” the allegation was put forward to suggest that the operations manager must have also witnessed the event. Finding it critical that there was not even a clear allegation that he saw the alleged conduct or the employee’s distress, Judge Manion would have completely affirmed the district court’s order.

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