• Dean Royer

Does the Title VII punitive damages statute satisfy due process?

On December 10, 2014, the Ninth Circuit Court of Appeals upheld a $300,000 punitive damages award in a sexual harassment case in which the jury awarded only $1 in nominal damages. In Arizona v. ASARCO LLC (9th Cir. Ariz. Dec. 10, 2014) 2014 U.S. App. LEXIS 23255, the issue before the Ninth Circuit was whether the punitive damages award was consistent with due process.

In this case, the plaintiff pursued multiple claims arising from her employment with ASARCO LLC, which operates a mine near Tucson, Arizona. The jury found in her favor under the federal employment discrimination statute (Title VII), and awarded her $1 in nominal damages and $868,750 in punitive damages. The trial court reduced the punitive damages to $300,000, the maximum allowed under Title VII for an employer of ASARCO LLC’s size. (42 U.S.C. section 1981a(b)(3)(D).) On appeal, a three-judge panel reduced the punitive damages award further to $125,000.

The Ninth Circuit agreed to hear the case en banc. It started by acknowledging the decision in BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, in which the U.S. Supreme Court established a due process standard for punitive damage awards. The standard consists of three guideposts: (1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. (State Farm Mutual Automobile Insurance Co. v. Campbell (2003) 538 U.S. 408, 418.)

The first step in the court’s analysis in Arizona was to review the constitutional concerns underlying the due process standard for punitive damages awards. One is fair notice to the defendant of conduct that will subject it to such awards and the severity of the penalty that may be imposed. A second is to avoid arbitrary, biased, or ill-informed deprivation of defendants’ property by juries when the statute or common law did not provide sufficient safeguards.

Next, the Ninth Circuit determined that rigorous application of the three Gore guideposts is appropriate when reviewing punitive damages awards for common law claims, but not when the awards arise from a statute. Accordingly, the court in Arizona looked to the Title VII statute. It concluded that the statute comports with due process because it sets forth the type of conduct that will justify an award of punitive damages, and establishes a cap on compensatory and punitive damages. Consequently, defendants have had the required fair notice since the establishment of the statute in 1991. The court in Arizona also determined that the chance of random, arbitrary awards is reduced considerably because of the combined cap on compensatory and punitive damages.

The Ninth Circuit also concluded that Title VII’s punitive damages statute satisfies the three Gore criteria. The intent requirement for an award of punitive damages satisfies the reprehensible conduct guidepost. The disparity between the harm suffered and the award (ratio) has little applicability because Title VII caps the liability. Furthermore, because the combined cap on compensatory and punitive damages means that greater awards for compensatory damages leave less available for punitive damages, the ratio guidepost is unnecessary. The Ninth Circuit also noted that because nominal damages are not compensatory in nature, application of the ratio guidepost in the Arizona case was not appropriate. Finally, the purpose of the third guidepost (comparison of the jury award to other comparable cases) is deference to reasoned legislative judgments. For Title VII, Congress made a reasoned judgment not simply as to analogous criminal or civil penalties, but as to punitive damages awarded in cases.

The decision in Arizona means that punitive damages awards within the Title VII cap should be upheld for employees in the Ninth Circuit. The U.S. Supreme Court may take a different view, but that will be a subject for a future post.

#Punitivedamages #TitleVII

  • Dean Royer

Does reporting illegal conduct by a co-worker constitute a wrongful termination claim?

On December 1, 2014, the Sixth District Court of Appeal offered some clarity on the issue of which forms of whistle-blowing activity give rise to a wrongful termination claim. In Ferrick v. Santa Clara University (Cal. App. 6th Dist. Dec. 1, 2014) 2014 Cal. App. LEXIS 1091, the court of appeal determined whether the plaintiff’s complaint stated a cause of action for wrongful termination in violation of public policy. These claims require a showing that the employer terminated (or took some other adverse action) against the plaintiff in violation of a policy that is (1) supported by constitutional or statutory provisions, (2) provides benefit to the public, (3) exists at the time of the termination, and (4) is fundamental and substantial. (Stevenson v. Superior Court (1997) 16 Cal.4th 880, 889-890.)

First, the court in Ferrick analyzed the plaintiff’s wrongful termination claim under the Labor Code’s general whistle-blower statute (section 1102.5). It determined whether any of the plaintiff’s reports concerned what she reasonably could believe were violations of any law or regulation. The court concluded that the allegations concerning the plaintiff’s report about commercial bribery (a public university employee accepting kick-backs) were sufficient, but that the remaining allegations about embezzlement, evasion of taxes, and driving without a valid license were not. These conclusions were based on the particular allegations in the case, and turned on whether the plaintiff could show that the activity she reported constitutes a violation of a specific law or regulation; or, in the case of the driving without a valid license, whether the plaintiff could show that the applicable regulation concerns a significant and fundamental public policy. The court also rejected the plaintiff’s theories that her reports constitute claims under workplace safety statutes (Labor Code section 6310 and 6400 et seq.) and the False Claims Act (Government Code section 12650 et seq).

Second, with respect to the kick-back allegation, the court decided whether the Penal Code prohibition on commercial bribery constitutes a significant and fundamental public policy. It noted a split of authority on the question of whether an employee’s report of a co-worker’s alleged unlawful activity is protected by a fundamental public policy. In American Computer Corp. v. Superior Court (1989) 213 Cal.App.3d 664, the Fourth District Court of Appeal concluded that an employee’s report of an investigation of a co-worker’s suspected embezzlement from a former employer served only the interests of the employer, and, therefore, did not support a wrongful termination claim. Two years later, in Collier v. Superior Court (1991) 228 Cal.App.3d 1117, the Second District Court of Appeal decided that the plaintiff’s report of suspected criminal conduct (bribery and kick-backs) by co-workers concerned a fundamental public policy in a workplace free of illegal activity. It reasoned that the report served not only the employer’s interest, but the public interest in deterring crime and the interests of people who stood to suffer harm from the activity.

The court in Ferrick concluded that the decision in Collier was better reasoned. It found that the Collier decision was consistent with the court’s recognition in Green v. Ralee Engineering Co. (1998) 19 Cal.4th 66, that section 1102.5 expresses a broad public policy interest in encouraging workplace whistle-blowers to report unlawful acts without fearing retaliation. The court in Ferrick also pointed to the Legislature’s recent amendment of section 1102.5 to protect disclosures to employers (in addition to reports to government or law enforcement agencies).

The decision in Ferrick provides greater weight to the view that an employee’s report of illegal conduct by a co-worker concerns a fundamental public policy, and, therefore, supports a wrongful termination claim. But until the Supreme Court of California decides the issue, it remains an open question.


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