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In a much-anticipated ruling, the California Supreme Court found in November that the affirmative defense to Title VII harassment claims first articulated by the U.S. Supreme Court in two companion cases cannot be used by employers to avoid liability for harassment claims brought under the Fair Employment and Housing Act. In Burlington Industries, Inc. v. Ellerth, 524 U.S. 775 (1998), and Faragher v. City of Boca Raton, 524 U.S. 775 (1998), the U.S. Supreme Court held that employers are vicariously liable for supervisors’ acts, but allowed an employer to “raise an affirmative defense to liability or damages” if “the employer exercised reasonable care to prevent and correct promptly and any sexually harassing behavior” and the “employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer.” While the California Supreme Court found in Department of Health Services v. Superior Court (McGinnis), S103487, that the Ellerth/Faragher defense could not be used to shield an employer from liability where an employer takes reasonable steps to prevent and correct harassment and an employee unreasonably fails to take advantage of such measures, damages may be limited by California’s common law doctrine of avoidable consequences. Teresa McGinnis, the real party in interest, was hired by the Department of Health Services in 1992 and worked for there under the supervision of Cary Hall from 1995 to 1997. McGinnis alleged that from early 1996 until late 1997, Hall repeatedly harassed her. Despite the existence of anti-harassment policies and procedures, McGinnis did not complain to management about Hall’s alleged behavior until November 1997. In response to her complaint, the department’s Office of Civil Rights immediately investigated her allegations and determined that Hall had violated the department’s sexual harassment policy. The department began disciplinary action against Hall, prompting him to retire. In spite of the department’s prompt investigation and remedial actions, McGinnis sued Hall and the department alleging violations of the FEHA. The department moved for summary judgment, citing Ellerth and Faragher, based on the fact that although McGinnis was aware of the department’s anti-harassment policy and procedure, she failed to take advantage of them for almost two years, all while being sexually harassed by Hall. The trial court denied the motion, stating that the Ellerth/Faragher affirmative defense did not apply to a FEHA claim for harassment. The Third District Court of Appeal agreed, reasoning that an Ellerth/Faragher defense was inconsistent with the FEHA’s policy of strict liability for the acts of supervisors. The California Supreme Court’s Nov. 24 decision framed the issue as “whether, under the FEHA, an employer is strictly liable for hostile environment sexual harassment by a supervisor and whether the damages a plaintiff may recover from the employer in such a case include damages that the plaintiff could have avoided by reporting incidents of harassment to the employer.” The court commenced its analysis by noting important differences between the FEHA and Title VII. First, the federal act does not expressly create liability for sexual harassment. The U.S. Supreme Court in Meritor Savings Bank v. Vinson, 477 U.S. 57 (1986), had inferred such liability. Likewise, the U.S. Supreme Court inferred employer liability for supervisors’ actions through the application of agency principles. In contrast to Title VII, the FEHA — in Government Code � 12940(j)(1); Carrisales v. Department of Correction, 21 Cal.4th 1132, 1136 (1999) — expressly deems sexual harassment unlawful and holds employers strictly liable for harassment by a supervisor and imposes a negligence standard of liability for harassment by nonsupervisory employees. The FEHA also imposes a separate requirement, Gov. Code � 12940(k), that an employer “take all reasonable steps necessary to prevent discrimination and harassment from occurring.” Accordingly, the court concluded, “an employer is strictly liable for all acts of sexual harassment by a supervisor.” As to the second part of the issue, the California Supreme Court explained, “strict liability is not absolute liability in the sense that it precludes all defenses,” and “even under a strict liability standard, a plaintiff’s own conduct may limit the amount of damages recoverable.” The latter concept is the principle behind the common law doctrine of avoidable consequences. In other words, “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 avoidable consequences doctrine has traditionally applied to general civil actions and qualifies the injured plaintiff’s right to recover damages from the defendant. The Supreme Court noted that nothing in the FEHA’s language or structure indicated that the Legislature intended to abrogate the doctrine of avoidable consequences. Therefore, the court found no particular reason to exempt the FEHA from a doctrine generally applicable to civil actions. The court found application of the avoidable consequences doctrine consistent with the FEHA’s two principal objectives — compensation and deterrence. An employer attempting to reduce its damages by applying the doctrine of avoidable consequences will have to plead and prove each of the following: “(1) [it] took reasonable steps to prevent and correct workplace sexual harassment; (2) the employee unreasonably failed to use the preventive and corrective measures that [were] provided; and (3) reasonable use of [its] procedures would have prevented at least some of the harm that the employee suffered.” In order to ascertain the reasonableness of an employee’s delay in reporting alleged harassment, the court noted that “an employee’s natural feelings of embarrassment, humiliation and shame may provide a sufficient excuse for delay in reporting acts of sexual harassment by a supervisor.” As the court pointed out, any such determinations will “present disputed factual issues to be resolved by application of practical knowledge and experience,” presumably making summary judgment motions predicated on the defense unavailable in most instances, given that a knowledgeable plaintiffs lawyer will likely coach her client to testify accordingly at deposition. Significantly, the court cautioned that an employer trying to use the defense should be prepared to demonstrate that it had adopted, implemented and communicated anti-harassment policies to its employees and that it has appropriately handled past complaints. The Supreme Court’s decision is by no means a slam-dunk defense for employers faced with FEHA harassment claims. An employer will be held liable for any sexual harassment by supervisory employees, and an employer will only be able to limit its damages if it succeeds in establishing each of the three elements of the avoidable consequences defense. In addition, the reasonableness of the employee’s decision whether to make an internal complaint is highly dependent on the particular facts of each individual case. The employer will bear the burden of pleading and proving that the employee was unreasonable in waiting to make a formal complaint to management. Moreover, asserting any such defense may open a Pandora’s box regarding the employer’s past treatment of harassment complaints and expose employers to even greater liability where there is evidence of prior mishandling of complaints. The employer’s defense to FEHA claims hinges on how well its communication methods really worked, “whether the employer prohibited retaliation for reporting violations, whether the reporting and enforcement procedures protect employee confidentiality � and whether the employer consistently and firmly enforced the policy.” Thus, a very careful case-by-case analysis needs to be done before asserting the avoidable consequences defense since savvy plaintiffs’ counsel will seize upon this defense to conduct discovery of prior sexual harassment claims generally and the employer’s handling of such claims. What is especially daunting is that plaintiffs’ counsel will claim entitlement to discovery of prior harassment claims, regardless of the plaintiff-employee’s knowledge of such claims. This is because the third prong of the defense requires proof that an employee’s use of an employer’s anti-harassment procedures would have prevented some of the harm suffered. Still, application of the avoidable consequences doctrine may provide employers with some insulation against excessive damages. The extent of the reduction in damages in a particular case caused by a delay in reporting the harassment will need to be balanced against the ramifications of asserting the defense. In summary, the apparent simplicity of the Supreme Court’s ruling in McGinnis is deceptive. It has already been misinterpreted as pro-employer by commentators when, in practice, it has significantly abrogated the effect of the Faragher and Burlington Industries decisions in California and imposed major potential evidentiary problems for employers seeking to rely on the defense in order to mitigate damages. Angela M. Bradstreet and Natalie Pierce are partners in the employment group of Carroll, Burdick & McDonough in San Francisco. They can be reached at (415) 989-5900, [email protected] or [email protected]. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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