By Gerald L. Maatman, Jr. and Michael L. DeMarino

Seyfarth Synopsis:  In E.E.O.C. v. Scott Medical Health Center, P.C. No. CV 16-225, 2017 WL 5493975, at *2 (W.D. Pa. Nov. 16, 2017), a default judgement of liability was entered against the defendant company for sex-based harassment, and the Court awarded the EEOC back pay, prejudgment interest, and compensatory and punitive damages. Although the Court found that an award of compensatory damages above $50,000 would be consistent with cases with comparable emotional distress, the Court determined that it was not authorized by statute to award more than this statutory cap.

This is case is  important as a continuation of one of the first decisions to conclude that discrimination based on sexual orientation is prohibited by Title VII. We blogged about it here.

Although the EEOC’s recovery was not what it might have been due to the statutory cap, this decision is nonetheless an important reminder for employers that compensatory and punitive damages could easily add up, even in cases involving sex-based discrimination and murky areas of Title VII.

Case Background

In E.E.O.C. v. Scott Medical Health Center, P.C. No. CV 16-225, 2017 WL 5493975, at *1 (W.D. Pa. Nov. 16, 2017), a default judgment on liability was entered against the defendant Scott Medical for sex-based harassment. The Court found that Dale Massaro, an employee of Scott Medical, was subjected to sex-based harassment in the form of anti-gay slurs and comments  directed at him by his supervisor, Robert McClendon. Id. Massaro reported the harassment to Gary Hieronimus, Scott Medical’s owner and CEO. Id. Rather than take action to stop the harassment, however, Hieronimus simply said that McClendon “was just doing his job.” Id.  After complaining to Hieronimus, the harassment continued, and Massaro quit his job. Id. at *2. Massaro then became depressed and suffered emotional distress for which he was treated by his family physician. Id.

The Decision

Scott Medical accepted a default judgment against it on liability but tried the issue of damages. After a trial on damages, the Court concluded that the EEOC proved by a preponderance of evidence that Massaro was entitled to a back pay award and prejudgment interest in the amount of $5,500.43. Id at *3. “Prejudgment interest on back pay awards,” the Court explained, “is appropriate to ensure that victims of discrimination are made whole.” Id.

The Court then calculated compensatory and punitive damages. Because Scott Medical had fewer than 101 employees, the applicable statutory limit on compensatory and/or punitive damages was $50,000. Id. at *5. Thus, although the Court concluded that the EEOC had proved that Massaro was entitled to at least $125,000 in compensatory and punitive damages, the EEOC’s recovery for Massaro was capped at $50,000. Id. at *5-6.

Critical to the Court’s damages award was that Scott Medical neither plead a “good faith efforts” affirmative defense to punitive damages nor presented any evidence to support such a defense. Id. at *5. The Court held that the evidence showed that Scott Medical made no efforts to comply with Title VII. Id. The Court concluded that Scott Medical’s CEO not only failed to take corrective action in response to Massaro’s complaint of harassment, but also actually ratified the harasser’s conduct by allowing the harassment to continue. Id. A good faith defense, the Court explained, is “unavailable for discriminatory acts committed by company officials who are of sufficient authority within the organization that they are deemed alter egos or proxies of the organization . . . .” Id.

Implication For Employers

Whether Title VII protects sex-based discrimination is an unsettled question and is likely hurtling towards the U.S. Supreme Court. Nonetheless, this case demonstrates that employers could face punitive damages for such violations. In other words, a “good faith efforts” affirmative defense might be unavailable even though the law to which the employer must make a good faith effort to comply with is unsettled.

While this areas remains hazy, employers should review their anti-harassment policies, and consider adding sexual orientation and gender identity as protected classes. In addition, employers will need to respond appropriately in the event of a complaint alleging harassment based on sexual orientation.