Gyulakian v. Lexus of Watertown, Inc., 475 Mass. 290 (2016)
The Massachusetts Supreme Judicial Court recently issued an opinion addressing the standard for awarding punitive damages against employers who are found liable for sexual harassment. In Gyulakian v. Lexus of Watertown, Inc., a Superior Court jury first determined that the plaintiff, a finance manager for the defendants, Lexus of Watertown, Inc., and Post Motors, Inc. (together, “Lexus”), had been subjected to a sexually hostile or offensive work environment by her direct supervisor during her employment. The jury awarded the plaintiff $40,000 in compensatory damages for emotional distress, and $500,000 in punitive damages. However, the Superior Court vacated the punitive damages award and the case was then heard on direct appellate review by the Supreme Judicial Court after the parties filed cross-appeals.
The SJC reversed the Superior Court’s decision and reinstated the jury’s punitive damages award, while also affirming the jury’s award of compensatory damages. In doing so, the SJC explained that “a supervisor’s creation of a sexually hostile or offensive work environment alone is [not] sufficient to warrant the imposition of punitive damages on the employer.” “Punitive damages are intended to fulfil a prophylactic purpose, and serve little benefit when imposed on an employer for the actions of a supervisory employee where that supervisor’s discriminatory transgressions were unknown to the employer.”
The SJC went on to hold that there is a two-step inquiry for determining whether punitive damages should be awarded against an employer who is found liable for sexual harassment. First, the fact finder must consider whether the employer was on notice of the harassment and failed to take steps to investigate and remedy the situation. Second, the fact finder must determine whether or not such failure was outrageous or egregious.
In applying its holding, the SJC first found that a jury could infer from the evidence that Lexus was on notice of the harassing behavior and failed to take “adequate remedial measures” after learning of the illegal conduct. While acknowledging that “[t]here is no bright line rule delineating who must be notified before an employer has been on notice of harassment in the workplace,” the Court held that the Lexus was clearly on notice here where:
- members of senior management had directly observed instances of the inappropriate behavior;
- the plaintiff had complained about her supervisor’s conduct on several occasions to the assistant general sales manager; and
- the plaintiff again reported the same on her last day of employment.
Further, the evidence suggested that Lexus failed to take remedial measures once they were aware of the conduct. Initially, the SJC noted that “where a conduit for sexual harassment notifications, as delineated in the employer’s sexual harassment policy, fails to appropriately report or in any way investigate a sexual harassment complaint, that lack of response is per se evidence of a failure to adequately remedy the purported discrimination.” In addition, the SJC explained that “the failure to remedy alleged discrimination also can arise where the employer purports to investigate discrimination, but does so in an “inadequate manner.” The Court then held that a jury was entitled to reach this conclusion here, pointing to the shortcomings in Lexus’s investigation. First, no members of the finance department, who would have been most likely to witness the alleged conduct, were interviewed, purportedly because the internal investigator did not want to undermine the alleged harassing supervisor. Second, the plaintiff was never contacted during the course of the investigation. Lastly, the investigation was carried out by a member of management who admitted to carrying a bias against the plaintiff.
This decision serves as a significant reminder to employers of the importance of promptly and thoroughly investigating and addressing any allegations of sexually harassing conduct in the workplace. As the Gyulakian decision indicates, failure to do so could result in significant liability – including the potential award of punitive damages.
Published in PDP’s Developments in Municipal Law Fall 2016 Newsletter.