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January 1, 2002

Failing to Train Managers on Preventing Discrimination in Employment Decisions can Establish an Employer's Willful Disregard for the Law Leading to an Award of Punitive and Liquidated Damages

Authors: Leigh Ann Tift

For years, Littler Mendelson has strongly recommended that all hiring managers attend training on lawful and nondiscriminatory hiring, screening, and interviewing practices. A recent Federal Circuit Court of Appeals decision confirms the wisdom of this advice. The court's conclusion is that employers who make no effort to train managers in these crucial areas are making an "extraordinary mistake." Mathis v. Phillips Chevrolet, Inc., 269 F.3d 771, 2001 U.S. App. Lexis 21879 (7th Cir. No. 00-1892, 10/15/01). This decision will likely apply to all important employment decisions, requiring many employers to expand their managing training programs.

Case Background

In response to an advertisement for a sales position, Mathis, an African American with 24 years of car sales experience, left an application at Phillips Chevrolet. When Mathis did not hear from the company, he left a second application. Each application form contained the standard language that the dealership was an equal opportunity employer and would not discriminate on the basis of age, race, and other protected categories. The forms also asked for a date of discharge from the military, which Mathis listed as 1959. This information allowed the court to conclude that the dealership's hiring managers knew Mathis was older than 40.

The dealership never interviewed Mathis. It did, however, hire seven new salespersons, all white and all younger than Mathis. Mathis filed suit in the U.S. District Court of the Northern District of Illinois, claiming that he was denied a job due to age and race discrimination in violation of the Age Discrimination in Employment Act (ADEA) and Title VII of the Civil Rights Act of 1964.

Mathis established that the dealership's general manager often noted the ages of employment applicants in a section of the application form. A second manager testified that he felt that the ideal applicant should be "bright, young, and aggressive." On the strength of this evidence, the jury found that the dealership denied Mathis a job because of his age and race and awarded him compensatory damages. The jury also found that the dealership's discriminatory acts were willful. Since courts must assess liquidated damages in the same amount as compensatory damages for willful violations under the ADEA, liquidated damages in the amount of $50,000 were added to Mathis' relief.

The Dealership's Appeal

On appeal, the dealership challenged the jury's award of liquidated damages claiming that there was no evidence of willfulness. Indeed, the dealership claimed that the EEO statement contained on the employment application showed a good faith effort to prevent discrimination such that liquidated damages were not warranted.

The Court disagreed. Remarkably, it was not what the dealership did but what it failed to do that led to the Court's decision. "Leaving managers with hiring authority in ignorance of the basic features of the discrimination laws is an `extraordinary mistake' for a company to make, and a jury can find that such an extraordinary mistake amounts to reckless indifference" of anti-discrimination laws.

The court also disregarded the dealership's argument that the EEO statement on the application protected the company from liquidated damages. Instead, the court reasoned that EEO statement was "more harmful to Phillips than helpful." This was "because the jury could easily have concluded that printing this statement on the application but then making no effort to train hiring managers about the ADEA shows that Phillips knew what the law required but was indifferent to whether its managers followed that law."

Implications—ADEA and Beyond

On its own terms, the Phillips case applies only to the award of liquidated damages under the ADEA. However, courts routinely harmonize the standards applied under various major federal EEO laws. This Phillips key holding that an employer's inaction regarding training shows willful disregard for the law will likely be applied broadly to all the areas of harassment and discrimination law.

Similar to the liquidated damages provisions of the ADEA, Title VII and the ADA subject an employer to punitive damages if it is proved that a manager's intentionally discriminatory actions were done with malice or reckless indifference to the employee's rights. However, even if this test is met, an employer can avoid the award of punitive damages if the employer shows that the manager's actions were contrary to the its "good faith efforts" to comply with Title VII. Kolstad v. American Dental Association, 527 U.S. 526, 119 S. Ct. 2118, 144 L. Ed. 2d 494 (1999). Courts have frequently found that training programs that emphasize compliance with discrimination laws is a key component in establishing that an employer took "good faith" efforts mandated by Kolstad. See Kolstad, 1195 S. Ct. at 2199. (The Court's decision is to encourage "employers to adopt antidiscrimination policies and to educate their personnel.")

The court in Phillips noted the similarities between the standard for awarding liquidated damages under the ADEA and punitive damages under Title VII. Indeed, the court stated that the failure to train managers "amounts to reckless indifference." These are the same words the U.S. Supreme Court used to describe the standard for punitive damages in Kolstad. Thus, failing to train managers could be used to prove a plaintiff is entitled to punitive damages. At very least, it is likely that courts would hold that the training is a required element of showing that an employer implemented "good faith" efforts to prevent discrimination from occurring.

Employers may also lose any chance of establishing an affirmative defense to unlawful harassment claims by failing to train their managers. To defend allegations of environmental harassment by nonsupervisory employees, employers must show that they took (1) "reasonable steps" to prevent harassment and (2) that the employee bringing the claim unreasonably failed to complain. Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, (1998), and Faragher v. City of Boca Raton, 524 U.S. 775 (1998). The defense applies not just to sexual harassment, but to all types of harassment prohibited by federal anti-discrimination laws. See e.g., Gotfryd v. Book Covers,Inc., 1999 U.S. Dist. LEXIS 235 (D. Ill. Jan. 6, 1999) (national origin harassment).

Training managers and employees on preventing unlawful harassment has been a key tool that employers have successfully used to establish both parts of the affirmative defense. Fuller v. Caterpillar Inc., 124 F. Supp. 2d 610 (N.D. Ill. 2000). The Equal Employment Opportunity Commission's 1999 guidelines on establishing an affirmative defense made the need to train more explicit, as the following quote demonstrates:

"If feasible, the employer should provide training to all employees to ensure that they understand their rights and responsibilities [under the laws prohibiting harassment]."

Using the Phillips holding as precedent, a court could easily equate the "extraordinary mistake" of failing to train managers on how to prevent and correct harassment with failing to take reasonable steps to prevent harassment under Faragher and Ellerth.

Practical Steps in Avoiding an Extraordinary Mistake

The most practical lesson from the Phillips decision may be stated succinctly—employers must "walk the talk." Nearly every employer has EEO statements in their policies and on their applications. Yet, as the Phillips decision makes clear, employers who do not follow that "talk" with action are opening themselves up to punitive damages and making it harder to defend harassment claims.

Since Faragher and Ellerth, many employers have made an admirable effort to train their managers and other employees about preventing sexual harassment. These efforts are important, but must be considered only a first step for those employers who want to avoid the often-crippling costs of punitive and liquidated damages. The Phillips case, which dealt with claims of age and race discrimination, makes clear that sexual harassment training is simply not enough. Employers should conduct an employment law training audit and ensure that their management training programs are complete.

Below are some questions employers can ask themselves to ensure that an organization's managing the law training programs are complete:

  1. Whom to train? All managers who influence employment decisions should receive mandatory managing the law training. Training only those people who have final authority to make employment decisions such as hiring and terminations is probably not adequate. Courts have not hesitated under the right facts to find liability for discrimination by lower level supervisors who influence the employment decision.
  2. What laws to cover? As discussed above, Phillips will likely be applied to all major discrimination laws. Make sure management training programs cover the following:
    • Title VII
    • ADEA
    • ADA
    • FMLA (which has a penalty provision similar to the ADEA).
  3. What skills to teach? Managers should be trained in making hiring, discipline, and termination decisions that comply with EEO laws and that will survive legal challenge. Do managers know what questions they can and cannot ask during a hiring interview? Do managers know how to avoid stereotypes when making employment decisions? Do managers know what factors to consider to ensure that discipline and termination decisions are (and appear) fair? Can managers create documentation that shows the organization's legitimate business decisions? Managing the law programs that fail to teach these skills and others needed throughout the employment lifecycle are not adequate.
  4. What level of skills and knowledge needs to be taught? Make sure the level of instruction is appropriate for the audience. For example, front-line managers and supervisors generally do not need to know all the technical aspects of the ADA and FMLA. Yet, if these managers fail to spot the early warning signs (and report them to HR) the organization could face liability. Thus, ADA/FMLA training for front-line managers can be a segment of a larger program. HR professionals and more senior managers, in contrast, need more comprehensive training on these subjects.
  5. Will the training program stand up to legal scrutiny? Courts (and opposing counsel) are frequently scrutinizing training that employers use to try to avoid or limit damages. Cadena v. Pacesetter Corp., 224 F.3d 1203 (10th Cir. 2000) (training which included unsound advice did not show a good faith attempt to prevent discrimination); Elmasry v. Veith, 2000 U.S. Dist. LEXIS 340 (N.H. 2000) (harassment training that was too brief did not show reasonable efforts to prevent harassment). Employers must ensure that their training programs are designed and delivered by experts in the relevant fields. Proper instructional design techniques must also be followed to ensure that employees truly "get the message."

By implementing a complete and adequate series of managing the law training programs, employers can help avoid an "extraordinary mistake" that leads to liability. Doing so will also help avoid many of the workplace problems that lead to litigation.

James C. Webber and Leigh Ann Tift are Shareholders in Littler Mendelson's Seattle office. If you would like further information, please contact your Littler attorney at 1.888.Littler, info@littler.com, Mr. Webber at JWebber@littler.com or Ms. Tift at LTift@littler.com.