Punitive Damages

by John Gause, Esq.
Published: Maine LAWYERS REVIEW, September 15, 1999 (updated December 2013)

Punitive damages play an important role in encouraging compliance with our civil rights laws. There is no better deterrent than assessing a heft penalty against those who base employment decisions on stereotypic and class-based assumptions about an employee’s abilities. Yet punitive damages awards are the exception rather than the norm in these cases. Although they are generally worth seeking, these damages are difficult to recover.

Three laws allow punitive damages in non-governmental employment discrimination cases. Under the Civil Rights Act of 1866, 42 U.S.C. § 1981 (§ 1981), punitive damages are available for discrimination based on race. Punitive damages have ben recoverable for violations of Title VII of the Civil Rights Act of 1964 (Title VII)— prohibiting discrimination based on race, color, religion, sex, or national origin—and the Americans with Disabilities Act (ADA) since the passage of the Civil Rights Act of 1991 (1991 Act). The Maine Human Rights Act (MHRA) was amended in 1997 to allow the recovery of punitive damages.

A creature of statute, the standard for punitive damages in employment cases is less onerous than in tort cases under Maine’s common law. Tuttle v. Raymond set a formidable common-law bar: A plaintiff must prove by clear and convincing evidence that defendant’s conduct was motivated by actual ill will or was so outrageous that malice can be implied. Under § 1981, the 1991 Act, and the MHRA, plaintiff must only prove that the employer acted with malice or with reckless indifference to plaintiff’s rights. The option of proving reckless indifference (as opposed to actual or implied malice) makes punitive damages more attainable in employment discrimination cases than in tort claims.

Punitive damages are not available if the discrimination was unintentional. This includes “disparate impact” cases, where a member of a protected class suffers an adverse job consequence, and it was not the conscious objective of employer to discriminate on the basis of the protected class. An example of a disparate impact case is an employer that follows minimum height and weight requirements that disproportionately excluded female applicants because they generally did not meet the requirements. Punitive damages are also unavailable in failure-to-accommodate cases under the ADA and MHRA if employer undertakes god faith efforts to identify and provide a reasonable accommodation.

Only larger employers will be subject to punitive damages under the 1991 Act and the MHRA. These statutes limit compensatory and punitive damages to employers with fifteen or more employees. Although the MHRA does allow the recovery of “civil penal damages” against smaller employers, they are capped at $20,000 for a first violation of the Act. The caps on punitive damages under the 1991 Act range from $50,000 to $300,000, and from $50,000 to $500,000 under the MHRA, depending on the size of the employer. Section 1981 has no caps or minimum-sized employer.

Both the 1991 Act and the MHRA exempt federal and state governmental entities from punitive damages, including municipalities. Such relief may be available, however, if a constitutional claim is brought a governmental official in her individual capacity under 42 U.S.C. § 1983. Racial and gender discrimination claims are common constitutional claims because distinctions based on race and gender are viewed with heightened scrutiny under the Fifth and Fourteenth Amendments. Punitive damages may also be available for First Amendment violations.

Punitive damages may only be awarded under the MHRA if plaintiff first filed a charge of discrimination with the Maine Human Rights Commission within 300 days of the discriminatory act. Failure to do so will limit plaintiff to equitable remedies such as reinstatement and lost wages. The charge will be deemed simultaneously filed with the Equal Employment Opportunity Commission on any parallel federal claims, which also has a 300-day limit for filing a charge. If the 300 days go by on the federal charges, no relief is available under them.

The Supreme Court addressed the standard for an award of punitive damages in Kolstad v. American Dental Association. In Kolstad, a less qualified man was promoted over plaintiff, a woman. The trial evidence of gender bias was that the hiring manager made sexually offensive jokes and referred to certain prominent professional women in derogatory terms. The trial court denied plaintiff’s request for a jury instruction on punitive damages. The jury found sex discrimination and awarded compensatory damages.

The Court of Appeals for the District of Columbia Circuit affirmed, holding that a showing of intentional discrimination is insufficient to award punitive damages. The court held that a plaintiff must also prove that a defendant engaged in “egregious misconduct” before she is entitled to an award of punitive damages. The court fond no “egregious misconduct” under the facts in the case.

The Supreme Court reversed. It held that while “egregious misconduct” may be evidence of the requisite state of mind to impose punitive damages, the 1991 Act “does not require a showing of egregious or outrageous discrimination independent of the employer’s state of mind.” Rather, the term “reckless indifference” requires a minimal showing that defendant discriminated “in the face of a perceived risk” that its actions were unlawful. Essentially, an employer must not only know it is taking an adverse employment action against employee because of her class status, but it must realize that taking the action because of that status is illegal.

The Court noted that punitive damages will not be allowed in every case of intentional discrimination. For example, punitive damages are unavailable when an employer does not know about the relevant federal prohibition; where the employer discriminates believing that its discrimination is lawful; where the theory of discrimination is novel or otherwise poorly recognized; or where an employer reasonably believes that its discrimination satisfies a bona fide occupational qualification defense or other statutory exception to liability.

Almost as an afterthought, Koldstad also invoked a sweeping change to the punitive damages standard that future defendants will turn to frequently. The Court first imposed a general rule that employers are vicariously liable for punitive damages when their employees discriminate in a “managerial capacity” while acting “within the scope of employment.” This part is good for plaintiffs. The Court then held that “an employer may not be vicariously liable for the discriminatory employment decisions of managerial agents where these decisions are contrary to the employer’s good-faith efforts to comply with Title VII.”

The Court did not identify the types of “good-faith efforts to comply with Title VII” that are necessary to shield an employer from liability. It might be interpreted to mean that employers will have a complete defense to an award of punitive damages if they have in place adequate training and procedures designed to prevent unlawful discrimination, no matter how egregious the conduct of their employees. Whatever the precise standard, plaintiffs need to conduct discovery on the extent of defendants’ training. This not only addresses this defense, but it is relevant to whether the managerial employees knew their actions were illegal, which is essential to showing “reckless indifference.”

In cases of discrimination by non-managerial coworkers, plaintiffs seeking to hold employers liable must show more than mere negligence by the employer. Some management-level employee must “by evil motive or intent” have engaged in protected-class discrimination himself or showed “reckless or callous indifference” to the discrimination of others. In Danco, Inc. v. Wal-Mart Stores, Inc., the United States Court of Appeals for the First Circuit held that Wl-Mart could not be held liable for punitive damages when a manager conducted a careless investigation into allegations of racial harassment by the manager’s subordinates, and he failed to take the necessary steps to ensure discrimination ceased.

When imposed, punitive damage awards accomplish the goal of deterring discrimination. Although they are uncommon and difficult to prove, we must ensure that these damages appear often enough to keep employers on their toes when confronting their employees’ civil rights.