Fourth Circuit: Well-Designed Anti-Discrimination Policies Will Protect You From Punitive Damages

By Richard Hafets and Paul Mallos

A recent decision by the Fourth Circuit Court of Appeals, Bryant v. Aiken Regional Medical Centers, Inc., clarifies the circumstances under which employers can avoid punitive damages for the discriminatory actions of their supervisory employees. Prior to this decision, the United States Supreme Court had held that employers could only avoid vicarious liability for punitive damages if they undertook "such good faith efforts" to comply with Title VII that holding them responsible would undermine the prophylactic purposes of the statute. In Bryant, the Fourth Circuit elaborated on the specific employer actions comprising "such good faith efforts." The Court determined that Aiken Regional Medical Center satisfied the good faith effort requirement through its equal employment opportunity policy, discrimination grievance policy, diversity training program, and voluntary efforts to establish a representative employee pool. Employers in the mid-Atlantic area now should be guided by the Fourth Circuit's decision when designing and instituting anti-discrimination measures.

Under the 1991 amendments to Title VII of the Civil Rights Act, punitive damages can be awarded against an employer who engages in intentional discrimination with malice or reckless indifference to its employees' federally protected rights. In Kolstad v. American Dental Association, the U.S. Supreme Court held that employers also are liable for punitive damages when employees serving in a managerial capacity intentionally discriminate while acting within the scope of their employment. Because Title VII is intended to motivate employers to deter discrimination, the Supreme Court created a defense to such vicarious liability: employers who make a good faith effort to comply with Title VII are not liable for punitive damages for the discriminatory behavior of their employees.

In Bryant, the Court found that the evidence presented at trial supported Wanda Bryant's claims of racial discrimination and retaliation at the hands of Aiken Regional Medical Centers' (ARMC) managerial employees. As a trained and experienced surgical technician with an excellent work history, Bryant, an African-American woman, was passed over multiple times for positions for which she was well-qualified. Bryant's applications were rejected with a number of unlikely excuses while the positions remained open. When she complained per the hospital's discrimination grievance policy, Bryant was subjected to a hostile work environment that eventually led her to resign. In light of this evidence, the Fourth Circuit affirmed an award to Bryant of compensatory damages for her lost wages, benefits and emotional distress. The Court, however, vacated a jury's award of punitive damages, finding ample evidence of ARMC's good faith efforts to comply with Title VII.

The Fourth Circuit found that ARMC's widespread anti-discrimination efforts precluded the award of punitive damages. The Court specifically highlighted the following four components of ARMC's good faith:

• An "extensively implemented organization-wide Equal Employment Opportunity Policy" that was included in the employee handbook and communicated to employees;
• A detailed grievance policy encouraging employees to report discrimination or harassment and explicitly informing employees that such complaints would be taken seriously and would not provoke retaliation;
• A "carefully developed" diversity training program, including formal training classes and group exercises for hospital employees; and
• Voluntary tracking of departmental demographics in order to maintain an employee base reflective of the pool of potential employees in the area.

The Fourth Circuit found these measures to be indicative of a strong commitment to compliance with Title VII. Accordingly, consistent with the Kolstad decision, the Court refused to punish ARMC with punitive damages.

The Fourth Circuit has provided employers with a valuable road map in Bryant. Well prepared employers now can leverage the guidance provided by Bryant to insulate themselves from vicarious liability for punitive damages. The Court recognized that managerial employees sometimes engage in discriminatory actions despite employers' sincere and extensive efforts to comply with Title VII. Consistent with the Supreme Court's desire to encourage voluntary anti-discrimination efforts by employers and to avoid punishing companies for actions beyond their control, the Fourth Circuit outlined specific circumstances in which employers can avoid vicarious liability for punitive damages. Instituting broad, organization-wide anti-discrimination measures, including the four components listed above, can protect you from vicarious liability for punitive damages.

The Court did not indicate whether measures less comprehensive than those undertaken by ARMC would have satisfied the "good faith effort" requirement. Lower courts within the Fourth Circuit thus may interpret the four components to be a minimum standard. As a result, employers should strive to institute anti-discrimination measures that are at least similar to those approved by the Fourth Circuit in Bryant.

This is a wonderful opportunity for companies to protect themselves from significant potential liability. We can help review, recommend and design policies and programs to assist you in taking advantage of the guidance now provided by the Fourth Circuit.

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