By Julie Crane, Rita Risser and Ann Kiernan, Attorneys at law

Your company has a 6 in 10 chance of being sued by an employee.1 You can buy insurance to cover your legal fees. You can buy insurance to pay the employee's back pay and emotional distress if you lose. But you can't buy insurance against punitive damages.

Punitive damages are designed to punish wrong-doers, and can cost you millions of dollars.

Fortunately, the courts have given employers a clear, step-by-step strategy for avoiding punitive damages.2 If you implement it, your company will never have to pay punitive damages — no matter what.

Want proof? A pregnant woman was harassed by her supervisor and co-workers, who made constant comments about her breasts. They feigned oral sex, rubbed her shoulders, and grabbed her face while attempting to kiss her. After she complained to management, they made kick-boxing motions towards her womb and asked her what she would do if she lost the baby.

The court ruled this was illegal harassment, but because the company had made good faith efforts to prevent harassment, it was not liable for punitive damages.

So what do you have to do to prove your good faith efforts? There are 5 steps.

1. Have Good Policies

It's not enough to have policies against discrimination and harassment. They have to be good ones. According to the EEOC, good policies have:

• Clear explanations of all prohibited conduct.
• Assurances of no retaliation.
• Clearly described complaint processes.
• Assurances of confidentiality (to the extent possible).
• Prompt, thorough, and impartial investigations, and
• Assurances that the employer will take immediate and appropriate corrective action.3

Does your company have a specific policy on sexual harassment? Good, but not good enough. Your policy should include all the EEO-protected characteristics. In one harassment case, the employer proved it had an effective sexual harassment complaint procedure, and that the employee knew about it. But the court said that's not the same as a policy on racial harassment. The employer lost.4

Another company lost a case, and had to pay punitive damages, because it's discrimination policy didn't prohibit discrimination based on pregnancy.5

ACTION STEPS: POLICIES

• Policies should include all types of illegal harassment and discrimination, not just sex harassment.
• Policies should comply with EEOC guidelines and state laws.
• Start with the Fair Measures Harassment Policy.
• A lawyer should review all policies every year.

2. Distribute policies

It does no good to have good policies if no one knows about them. Though the cases don't tell us how often policies should be distributed, clearly once is not enough.

In fact, laws in Maine and Massachusetts require anti-harassment policies to be distributed every year.6

In a case against U-Haul, the court upheld a punitive damages award, because the sex discrimination policy was not distributed frequently.7

But UPS won a case where it had distributed its policies to all employees, posted them in the break rooms, published a toll-free number to report complaints, and trained its managers.8

ACTION STEPS: DISTRIBUTE POLICIES

• Send regular emails with links to particular policies on the web.
• Send out harassment and discrimination policies every year.
• Send out policies whenever they are changed.
• Have employees sign acknowledgement of receipt of all policies.
• Post no-discrimination/harassment policies in lunch and break rooms.

3. Training

Having policies is not enough. Managers must be trained so they follow and enforce the policies.

Wal-Mart was ordered to pay punitive damages because it didn't train managers about disability discrimination. A manager demoted a hearing-impaired worker who left a training session because there was neither closed-captioning of the videotape nor an interpreter. When the employee sued for disability discrimination, the court said:

Wal-Mart's assertion of a generalized policy of equality and respect for the individual does not demonstrate an implemented good faith policy of educating employees on the Act's accommodation and nondiscrimination requirements.9

In another case where the company did not have a training program, a manager testified that he didn't know age discrimination was illegal. The federal appeals court upheld the jury award against the company, saying that leaving hiring managers "in ignorance of the basic features of the discrimination laws is an ‘extraordinary mistake' for a company to make, and such an extraordinary mistake amounts to reckless indifference."10

The trend is towards mandatory training. A new federal law mandates that all federal agencies train their employees about their rights and remedies under the discrimination, harassment, and whistle blowing laws.11 At least two states - Connecticut and Maine - require employers to provide anti-harassment training12, and several others "encourage" employers to do so.

Some companies try to save money on training by showing videos or having line managers do the training. But one federal court upheld a jury verdict for punitive damages where the anti-discrimination training program was a ten-minute video with hand-outs.13

Another court was not impressed when the manager in charge of harassment training testified he believed it was not sexual harassment if a male supervisor exposed his genitals to a female subordinate or grabbed her breasts - as long as he apologized.14

ACTION STEPS: TRAINING

• Require training for all managers on harassment and discrimination, including what to say (and not say) when receiving complaints.
• Training should integrate law, company policy and corporate values.
• Use trainers who are not only experienced attorneys, but also skilled presenters who make the program interactive and fun.
• Train Human Resources on complaint resolution, including when to seek outside assistance.
• Track training attendance.

4. Respond to Complaints

It's not enough to have good policies and training. When employers get complaints, they must respond promptly, thoroughly, and appropriately.

In one case, a woman was sexually harassed by her manager. When she filed a complaint, she was told, "That's just the way he is." She was told the home office knew about it but wouldn't do anything because he made too much money for the company. She was reminded that he was a revenue producer, and she wasn't. Her jury award of punitive damages was upheld on appeal.15

But in other cases alleging similar sexual harassment, the employers were found not liable for punitive damages because the companies took immediate, appropriate responses to the complaints. 16

ACTION STEPS: ENFORCEMENT OF POLICIES

• Take all complaints seriously.
• Respond to complaints immediately.
• Enforce policies consistently against all employees, no matter how "important" they are.

5. Management Commitment

You may have great policies, regularly distributed, supported by training, and fully implemented when complaints are received. All of that can be torpedoed if top management doesn't show its commitment.

A Sheriff's Department conducted sexual harassment training for all its officers. So far, so good. But then the Sheriff walked into the classroom and said, "Remember, guys, harass is one word, ha, ha, ha."17 When an employee sued the Department and the Sheriff, he was held personally liable for punitive damages.

ACTION STEPS: MANAGEMENT COMMITMENT

• Policies should be endorsed in writing by the CEO.
• Introduce training initiatives with a letter or video from the president or CEO showing top management support for the program.
• High-ranking executives who violate policies should be disciplined or fired.
• Executive team should attend the training.

That's it — five easy steps. If you have and distribute good policies, train your managers, resolve complaints, and demonstrate management commitment, your company will be as safe as possible from punitive damages.

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1. Society for Human Resources
2. Woodward v. Ameritech Mobile Communications, 2000 U.S. Dist. LEXIS 7133 (S.D. IN 2000)
3. EEOC, Enforcement Guidance: Vicarious Employer Liability for Unlawful Harassment by Supervisors, http://www.eeoc.gov/docs/harassment.html
4. Williams v. Multnomah Ed. Svcs. Dist.
5. Golson v. Green Tree Financial Servicing Corp., 2002 US. App. Lexis 472 (4th Cir. 2002)
6. 26 Me. Rev. Stat. §807(3); Mass. Gen. L. Ch. 151B,§ 3A
7. 233 F. 3d 655, 670 (1st Cir.) cert. den. ___ U.S. ___, 122 S. Ct. 41 (2001) Another federal appeals court reinstated a jury's $20,000 punitive damage award because the employer did not "provide its employees ready access to it sexual harassment policy "in Hertzberg v. SRAM Corp., 261 F .3d 651, 664 (7th Cir. 2001), cert. den. ___ U.S. ___, 122 S. Ct. 1070 (2002).
8. Hooker v. Wentz, 77 F. Supp. 3d 753, 757-9 (S.D. W. Va. 1999)
9. EEOC v. Wal-Mart Stores, 187 F.3d 1241 (10th Cir. 1999)
10. Mathis v. Phillips Chevrolet, Inc., 269 F.3d 771 (7th Cir. 2001)
11. Notification and Federal Employee Antidiscrimination and Retaliation Act of 2002, P.L. 107-174, signed May 15. 2002.
12. Conn. Gen. Stat. 46a-54(15)(B); 26 Me. Rev. Stat. §807(3).
13. Wagner v. Dillard Dept. Stores, 2000 U.S. Dist. LEXIS 20414 (M.D.N.C. 2000)
14. Cadena v. The Pacesetter Corporation, 224 F.3d 1203 (10th Cir. 2000)
15. Cadena v. The Pacesetter Corporation, 224 F.3d 1203 (10th Cir. 2000) See also Deters v. Equifax Credit Info. Svc., 202 F.3d 1262 (10th Cir. 2000) (Jury award of $5,000 in compensatory damages and $295,000 in punitives upheld where HR rep told sexual harassment complainant to remember that the harassers were revenue-producers and she was not.)
16. Fuller v. Caterpillar, Inc., 124 F. Supp. 2d 610, 618 (N.D. Ill. 2000), Dobrich v. General Dynamics Corp., 106 F. Supp. 2d 386, 395 (D. Conn. 2000)
17. Caggiano v. Fontoura, ___ N.J. Super. ___ (App. Div. 2002), 2002 N.J. Super. LEXIS 367, http://lawlibrary.rutgers.edu/courts/appellate/a1001-00.opn.html