California Supreme Court Recognizes Damages-Limiting Defense to Sexual Harassment Claims Under the Fair Employment and Housing Act

The California Supreme Court recently ruled that an employer in a sexual harassment case may limit a plaintiff’s damages if it can show that the damages could have been prevented by the plaintiff with reasonable effort and without undue risk, expense, or humiliation. State Department of Health Services v. Superior Court (McGinnis), 31 Cal. 4th 1026 (2003).

The plaintiff in McGinnis alleged that she was sexually harassed by her supervisor from early 1996 until late 1997. In 1996, the plaintiff told a coworker about her supervisor’s behavior but she did not formally report it to management until November 1997. When the plaintiff finally did complain her employer investigated plaintiff’s allegations and determined that the supervisor had, in fact, violated the employer’s sexual harassment policy. Plaintiff’s supervisor was disciplined and eventually retired as a result of the findings. Plaintiff subsequently sued her supervisor and her employer for, among other things, sexual harassment in violation of California’s anti-discrimination law, the Fair Employment and Housing Act (“FEHA”). Her employer asserted various affirmative defenses, including the argument that plaintiff’s failure to promptly invoke the employer’s anti-harassment policies and procedures provided it with a complete defense to her claim.

The Court ruled that in an FEHA action against an employer for hostile environment sexual harassment by a supervisor, an employer may plead and prove a defense based on the “avoidable consequences doctrine.” Under this doctrine, a person injured by another’s wrongful conduct will not be compensated for damages that the injured person could have avoided by reasonable effort or expenditure. The Court stated that, in the hostile environment harassment context, the defense has three elements: (1) the employer took reasonable steps to prevent and correct workplace sexual harassment; (2) the employee unreasonably failed to use the prevent and correct workplace sexual harassment; and (3) reasonable use of the employer’s procedures would have prevented at least some of the harm that the employee suffered. Thus, to take advantage of this defense, the employer ordinarily will have to show that it has adopted appropriate anti-harassment policies and has communicated the policies and implementing procedures to its employees. The employer should also be able to show that it took effective steps to encourage victims to come forward with complaints of unwelcome sexual conduct and that it responded effectively to the complaints.

Although the Court recognized this affirmative defense, the Court was also clear in stating that the defense does not entirely preclude liability; rather, the employer is strictly liable for all acts of sexual harassment by a supervisor and the defense merely limits a plaintiff’s amount of recoverable damages. In addition, the Court ruled that the defense does not allow an employer to escape all damages but only those damages that the employee more likely than not could have prevented with reasonable effort, by taking advantage of the employer’s complaint procedures. In this respect, the defense recognized in McGinnis differs significantly from the defense to hostile environment sexual harassment claims under federal law recognized by the U.S. Supreme Court in Burlington Industries v. Ellerth, 524 U.S. 742 (1998) and Faragher v. City of Boca Raton, 524 U.S. 775 (1998). In those cases, the Supreme Court ruled that an employer may avoid liability altogether for a supervisor’s harassing conduct by establishing an affirmative defense consisting of two prongs: (1) that it exercised reasonable care to prevent and correct promptly any sexually harassing behavior; and (2) that the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provide by the employer or to avoid harm otherwise. Under Faragher/Ellerth, an employer is entirely insulated from Title VII liability for hostile environment sexual harassment if it can establish this defense. Under McGinnis, on the other hand, employers sued for harassment under the FEHA may rely upon the defense only to limit the amount of damages.

Nevertheless, this decision provides California employers an important defense to limit damages for hostile work environment claims where they have adequate sexual harassment reporting procedures in place. All California employers should review their policies and procedures to ensure that they comport with the standards set forth in the McGinnis decision. Specifically, employers should ensure that their policies and procedures have been communicated to their employees and that such procedures clearly delineate how to make a complaint and to whom such complaints may be directed. Furthermore, employers should take steps to assure their employees that they will not be subject to retaliation for making any complaints pursuant to its procedures. Finally, employers should also maintain a sexual harassment training program, to ensure that all employees are aware of the standards of conduct expected of them and the remedies available for inappropriate conduct by others.