Fourth Circuit Reverses Findings Of Vicarious Punitive Liability Under Title VII And North Carolina Law

Making important law on the question of vicarious liability for punitive damages, the Fourth Circuit recently reversed awards of punitive damages under Title VII and North Carolina law in Ward v. AutoZoners.

The case involved alleged peer-on-peer sexual harassment at an AutoZone store. Keith Ward, an AutoZone employee, reported to multiple supervisors that a coworker, Christina Atkinson, had targeted him repeatedly for lewd remarks and inappropriate physical contact. Ward alleged that the supervisors took ineffective action in response, causing him to suffer anxiety, stress, and chest pains that required medical attention.

After quitting his job, Ward filed suit against AutoZone in the Eastern District of North Carolina, asserting a hostile-work-environment claim under Title VII, intentional infliction of emotional distress (“IIED”) under North Carolina law, and other claims. The jury awarded $100,000 in compensatory damages and $600,000 in punitive damages for the Title VII claim; it awarded $150,000 in compensatory damages and $60,000 in punitive damages for the IIED claim.

In response to post-trial motions, the district court declined to disturb the jury’s liability findings, but reduced the punitive damages for the Title VII claim to $200,000 in compliance with the statutory $300,000 limit on total damages imposed by 42 U.S.C. § 1981a(b)(3)(D).

The Fourth Circuit reversed both punitive damages awards.

Title VII

Plaintiffs seeking punitive damages under Title VII must prove by a preponderance of the evidence that the employer engaged in unlawful intentional discrimination and did so with malice or reckless indifference. An employer is vicariously liable for an employee’s intentional discrimination if, as relevant here, the employee served in a managerial capacity and was acting within the scope of employment.

On appeal, AutoZone argued that none of the supervisors who had been informed of the alleged misconduct possessed the managerial capacity needed to impute liability to AutoZone. AutoZone also argued that the supervisors did not act with reckless indifference.

The Fourth Circuit began its analysis by providing useful guidance on the criteria for determining whether an employee should be treated as a manager.

The court observed that “[i]n determining whether an employee serves in a managerial capacity, courts must apply traditional agency principles.” Those principles require examining, among other things, whether the employer has bestowed upon the employee the authority to make personnel decisions.

Focusing largely on this factor, the Fourth Circuit concluded that, taking the evidence in the light most favorable to the verdict, two of the three employees who were aware of Ward’s complaints qualified as managerial.

The first, Kenneth Geer, was a district manager for AutoZone who had authority to approve the promotion of employees from part-time to full-time status and to transfer employees from one store to another.

The second, Wayne Tarkington, was the manager of the store in which Ward and Atkinson worked. Tarkington had the authority to hire employees, discipline them, and issue “corrective action reviews.” He also was responsible for enforcing AutoZone’s policies within the store.

In contrast, the “authority and discretion” of the third employee, Wanda Smith, “were far more circumscribed.” She had a fancy title—Commercial Sales Manager for the store in which Ward and Atkinson worked—but her actual job duties did not entail substantial managerial responsibilities. For example, although Smith could make recommendations about hiring and staffing, she had no authority to hire or fire an employee herself.

To be sure, both Ward and Atkinson “reported to Smith in some ways,” but, the court held, “if occasionally supervising two people creates sufficient managerial capacity, virtually all employees except those at the lowest levels of a company’s hierarchy would qualify”—a result the court deemed inconsistent with case law construing Title VII.

Having concluded that there was sufficient evidence that Geer and Tarkington qualified as managers, the Fourth Circuit turned to whether either of them engaged in conduct that was sufficiently wrongful to justify punishing AutoZone.

The Fourth Circuit emphasized that Ward was required to adduce “sufficient evidence showing Geer or Tarkington themselves engaged in intentional discrimination in order to hold AutoZone vicariously liable for punitive damages.” Ward’s evidence, however, was that Atkinson had engaged in intentional discrimination—sexual harassment—and that Geer and Tarkington had failed to respond adequately. This was insufficient.

As the court explained, “to the extent that Ward seeks to mix and match Atkinson’s discriminatory conduct with Geer and Tarkington’s managerial capacity, such a theory finds no support in the precedent from the Supreme Court or this Court.” Put another way, punitive liability may not be imposed “when the employee who carries out the intentional discrimination is not a manager and the alleged managers did not carry out the intentional discrimination.”

The court acknowledged that, “[i]n certain circumstances, punitive damages may be appropriate where a managerial employee is apprised of a discriminatory situation, yet responds with reckless indifference to it despite his or her knowledge of the claim.” But, importantly, it held that reckless indifference requires “distinct intentionality”—a deliberate unwillingness to comply with known statutory requirements.

The Fourth Circuit held that Ward had fallen short of proving that either Tarkington or Geer had “engaged in intentional discrimination with reckless indifference to Ward’s rights.” Instead, the evidence showed that both men attempted to stop the harassment, albeit unsuccessfully. The court concluded that, “[a]t best, Geer and Tarkington were negligent, not recklessly indifferent,” a fact that could be the basis for compensatory damages, but not punitive damages, which the Court characterized as “an extraordinary remedy.”

Summarizing its holding, the court explained that “[i]mposing punitive damages in the case of the mere knowledge of Atkinson’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.”

To avoid that result, “a party seeking to hold an employer vicariously liable for punitive damages based on the theory that employees served in a managerial capacity must establish more than that manager-level employees negligently failed to adequately respond to complaints of harassment. He must show that the managerial employees engaged in an intentionally discriminatory practice themselves with malice or reckless indifference.”

North Carolina Law

There shouldn’t have been much mystery about what would happen to the punitive damages for the IIED claim after the court threw out the punitive damages under Title VII.

As the Fourth Circuit pointed out, the standards for imposing punitive damages under North Carolina law are more stringent than those under Title VII in two respects.

First, North Carolina requires plaintiffs to prove the state-of-mind requirement for punitive damages—fraud, malice, or willful or wanton conduct—by clear and convincing evidence. This standard of proof requires “evidence that should fully convince.”

Second, “willful or wanton conduct” under North Carolina law requires a “conscious and intentional disregard of and indifference to the rights and safety of others, which the defendant knows or should know is reasonably likely to result in injury, damage, or other harm”—a degree of misconduct that goes beyond “mere carelessness or recklessness.”

Applying these standards, the Fourth Circuit held that, because “Geer and Tarkington both acted in some fashion to address Ward’s concerns,” “[t]he record evidence, even viewed most favorably to Ward, does not ‘fully convince’ that they participated in or condoned willful or wanton conduct under North Carolina law.”