The Seventh Circuit recently issued an opinion in EEOC v. Management Hospitality of Racine, Inc. d/b/a International House of Pancakes, et al., No. 10-3247 (7th Cir. Jan. 9, 2012) – substantially upholding a jury’s verdict that an employer allowed two teenage employees to be sexually harassed in violation of Title VII. In its ruling, the Seventh Circuit decided several key issues common in sexual harassment cases, setting precedent for future litigation and lessons for employers going forward.
In EEOC v. Management Hospitality of Racine, Inc. d/b/a International House of Pancakes, et al., the EEOC brought suit against Management Hospitality, an International House of Pancakes (“IHOP”) franchisee, as well as its owner and its third-party management company, Flipmeastack, on behalf of two teenage servers, Katrina Shisler and Michelle Powell, who worked at an IHOP in Racine, Wisconsin. The EEOC alleged that the servers were harassed by an older, low-level manager, and that the company failed to respond to their complaints. A jury found in favor of the EEOC and awarded the servers compensatory and punitive damages. The Seventh Circuit largely upheld the jury’s verdict.
Shisler began working at the Racine IHOP on March 3, 2005. According to Shisler, whenever she worked with the night manager, Gutierrez, he made sexually charged comments. She claimed that Gutierrez propositioned her for sex, stared at her body, pressed up against her, and “slap groped” her buttocks. Id. at 7. On March 18, 2005, she and two other servers reported Gutierrez’s behavior to an assistant manager, and the assistant manager “blew [them] off” and called them “silly girls.” Id. On March 27, 2005, Shisler reported the behavior to the general manager, who also responded with “deaf ears.” Id. The district manager eventually conducted his own investigation, determined that Shisler and Powell had complained to the general manager, and terminated the general manager for violating the sexual harassment policy.
The jury found in favor of the EEOC on the sexual harassment and retaliation claims. The district court upheld the verdict, entered judgment in favor of the EEOC, and imposed an injunction on Flipmeastack.
The Seventh Circuit’s Opinion
The Seventh Circuit reversed in part and affirmed in part. The Seventh Circuit found that a rational jury could have found that Shisler was subjected to harassment that was both severe and pervasive. The Seventh Circuit found the 10-year age difference between Shisler and Gutierrez relevant, as well as Gutierrez’s position of authority over her. Although Shisler could only identify three specific instances of sexually harassing comments and conduct by Gutierrez over the four-week period of her employment, the Seventh Circuit determined that the three instances she identified – saying she was “kinky and liked it “rough,” propositioning her for sex, and “slap groping” her buttocks – were sufficiently severe to support a jury verdict. Id. at 16.
The Faragher/Ellerth Defense
The Seventh Circuit also upheld the jury’s rejection of the Faragher/Ellerth affirmative defense. The Seventh Circuit held that a rational jury could have concluded that the Defendants exercised reasonable care by instituting a sexual harassment policy with a reasonable complaint mechanism, and by engaging in prompt and corrective action by investigating the complaints. However, it found that the evidence also was sufficient for the jury to reach the opposite conclusion.
First, the Seventh Circuit noted that the “mere creation” of a sexual harassment policy will not shield a company from its responsibility to actively prevent sexual harassment in the workplace. Id. at 20. A rational jury could have found that the policy and complaint mechanism were not reasonably effective in practice. For example, Gutierrez violated the policy by engaging in sexual harassment, and the assistant manager and general manager failed to report the harassment after receiving complaints.
Second, although management was required to take sexual harassment training, the evidence suggested that the training was inadequate. The assistant manager testified that she did not receive training herself, even though she was responsible for training new employees. Further, the assistant manager did not report Powell’s complaint because, in her opinion, Powell did not seem to be “afraid” of Gutierrez. Id. at 21.
Third, a rational jury could have concluded that the district manager’s investigation of Gutierrez’s sexual harassment was not prompt. Shisler complained twice in March, and Powell complained three times in April, and yet the company did not commence its investigation until late May. The Seventh Circuit opined that this “is not the type of response ‘reasonably likely to prevent the harassment from recurring.” Id. at 22.
Further, the Seventh Circuit found that a rational jury could have concluded that the policy was not reasonably effective on paper. It observed that an employer’s complaint mechanism must provide a clear path for reporting harassment, particularly where a number of the workers are teenagers. Flipmeastack’s sexual harassment policy did not provide a point person for complaints; in fact, neither the policy nor the Defendants’ posters identified any names or contact numbers to call in the event of sexual harassment.
The Seventh Circuit also rejected Defendants’ argument that Shisler and Powell unreasonably failed to take advantage or preventative or corrective measures because they did not complain to the district manager. The Seventh Circuit concluded that this argument ignored the terms of Defendants’ own sexual harassment policy, which provided that an employee was required to report improper behavior to “[the employee’s] manager or company representative.” Id. at 23. Shisler and Powell first asked Gutierrez to stop his harassing behavior, then reported to the harassment to the assistant manager and general manager.
In these circumstances, the Seventh Circuit upheld the punitive damages award. It noted that, while Defendants’ sexual harassment policy is relevant to evaluating whether an employer engaged in good faith efforts to company with Title VII, “it is not sufficient in and of itself to insulate an employer from a punitive damages award.” Id. at 27. In fact, the Seventh Circuit noted that a rational jury could have concluded that certain policy language – i.e., noting the “severity of knowingly making a false accusation of discrimination or harassment” – was inserted to discourage complaints of sexual harassment. Id. at 28.
Implications For Employers
In the course of its opinion, the Seventh Circuit identified several deficiencies in Flipmeastack’s sexual harassment program from which employers can learn. For instance, in its policy, Defendants directed employees to report concerns to their managers or company representatives, yet did not ensure that such persons knew how to respond. Defendants likewise implemented a training program, but did not ensure that all managers participated. Defendants also required employees to sign an acknowledgement of the policy, while failing to make copies accessible to workers. As the Seventh Circuit reaffirmed, mere adoption of a policy is not enough – particularly where the protections offered by them can be viewed as illusory.