William Dominic, an accounting manager in DeVilbiss Air Power Co.’s Decatur, Ark., plant, submitted to his plant manager in 2004 a laundry list of sexual harassment allegations against his supervisor, Patricia Fant. Among the accusations were charges Fant had tried to unzip Dominic’s pants and grab his genitals while having after-work drinks, offered to “tie him up and attack him” and became jealous if he spoke to other female co-workers–”a Fatal Attraction-type thing,” Dominic would later tell the U.S. District Court for the Western District of Arkansas.

The company couldn’t substantiate most of Dominic’s claims and, after a brief paid leave, Fant was back on the job. Soon after Dominic accused Fant of retaliation. This time DeVilbiss hired an outside firm to conduct an investigation and audit the previous investigation; still, it could not substantiate the claims.

Regardless, DeVilbiss tried to accommodate Dominic, but the company couldn’t remove Fant as his direct supervisor. Dominic resigned Dec. 11, 2004, and later filed suit against DeVilbiss under Title VII.

A district court jury in December 2005 awarded Dominic $413,964.51, including $250,000 in punitive damages. DeVilbiss appealed the punitive damage award, and in May an 8th Circuit panel reversed the jury’s recommendation on punitives. DeVilbiss won the reversal based not on a question of whether Fant had actually harassed Dominic–it had not even appealed that ruling–but on the company’s conduct in handling Dominic’s allegations.

“Amazingly the employer did not appeal the liability findings,” says Chip Yablonski, plaintiff’s attorney in Kolstad v. American Dental Association, the 1999 Supreme Court case that introduced the notion of considering “good faith efforts” for punitives. “As Kolstad said, except in very rare instances, if there’s enough evidence to get to the jury on liability, there’s enough for the jury to award punitives.”

Employer Road Map
Since Kolstad lower courts have helped form a general idea of what comprises a good faith effort, mostly by deeming certain employer actions specifically malicious or recklessly indifferent–for the purpose of definition, the exact opposite of good faith. Now with the 8th Circuit’s decision in Dominic v. DeVilbiss Air Power Co., employers have a clear model for handling harassment accusations.

“The general theory is if the employers are acting in good faith, even if they come to the wrong conclusion, you should reward them for trying to do the right thing, as long as they’re doing it fairly, justly and thoroughly,” says Heather Sager, a partner with Drinker Biddle.

Retracing DeVilbiss’ steps in handling Dominic’s allegations reveals plenty about the company’s efforts. To begin with, it had in place a formal anti-harassment policy, the backbone of any good faith effort. After learning of Dominic’s accusations, his managers immediately launched an investigation, beginning with interviews of the accused, the accuser and their co-workers. They used neutral, open-ended questions while conducting interviews and even brought in an outside firm to supervise and conduct further investigations.

Although investigations couldn’t substantiate the more serious claims, the company still gave Dominic special assignments that let him work from home and ordered Fant to supervisor training and warned her against retaliation. They also required all employees to attend a sexual harassment training session. When Dominic accused Fant of retaliation, DeVilbiss closely supervised and minimized their direct communications.

The company’s thorough handling of the matter paid off to the tune of $250,000. “Dominic is the best road map out there for what a company can and should do to create a protective cover from punitive damages in Title VII cases,” says Bill Bruner, associate general counsel for Black and Decker, which now owns DeVilbiss.

Some Caveats
Although DeVilbiss’ handling of the allegations ultimately got it a win, Paula Champagne, a shareholder with Littler Mendelson, thinks parts of the investigation were flawed.

Chief among her criticism is lack of objectivity on the employer’s part. Dominic alleged in lower court that when he first met with the DeVilbiss HR manager, the first thing the HR manager said was, “What do you feel about destroying [Fant's] life like you’re doing?” “Putting an employee on the defensive is not the way to start an investigation,” Champagne says.

And although DeVilbiss got things right on the back end, it might have been lacking on the front end. “I have some concern that employers will view this decision as a bit of a ‘get out of jail free card’ that might function as a discouragement against proactive measures,” Sager says.

With these cautions in mind, the 8th Circuit’s opinion means Dominic still stands as a good guide for employers handling “he said-she said” investigations, although they should handle such matters on a case-by-case basis.

One thing all employers should remember is that true good faith efforts cannot be driven solely by financial desires. The courts tend to see right through hollow attempts to avoid punitive damages. In 2000′s Lowery v. Circuit City Stores, for example, the employer traveled a similar course as DeVilbiss in handling discrimination charges. But when executives came off as having a racist attitude, the 4th Circuit called into question Circuit City’s sincerity and found its efforts were in bad faith. The victory in Dominic stemmed from the company’s genuine interest to make things right.

“This case isn’t just about money,” says Arnold Perl, a partner in Ford & Harrison who represented DeVilbiss. “It is about a company full of real people and their reputations, which often gets lost in the process. This wasn’t just a legal matter. It was a matter of doing right.”