When The Boss Does the Harassing, the Company Pays

A recent decision before the Second Circuit Court of Appeals provides a cautionary lesson for employers involved in employee harassment lawsuits.

In Townsend v. Benjamin Enterprises, Inc., the Second Circuit affirmed a lower court ruling that Benjamin Enterprises was liable for sexual harassment by its vice president because he was “a corporate shareholder [who] … exercised a significant degree of control over corporate affairs,” essentially a proxy for the company itself.

For your reference, three takeaways from the “Alter Ego” decision:

1. Employers can be held responsible for the actions of high-ranking employees:

“As stated by the court, ‘[T]he relevant question is not whether the employer approved of the actions of the supervisor but rather whether the supervisor occupied a sufficiently high position in the management hierarchy of the company for his actions to be imputed automatically to the employer.’ What may qualify? As other courts have said, they consider ‘supervisors to be of sufficiently high rank to qualify as an employer’s proxy or alter ego when the supervisor is a president, owner, proprietor, partner, corporate officer or otherwise highly-positioned in the management hierarchy.’” (Second Circuit = The Avengers? Judges Create Alter Ego Liability by Pullman & Comley, LLC)

2. The rules are different when senior management is involved:

“… under Faragher/Ellerth, an employer is not liable for supervisory harassment if the employer took effective remedial measures after the employee complained about a hostile work environment. This affirmative defense, however, has its limitations. [T]he Second Circuit ruled that an employer cannot raise the Faragher/Ellerth affirmative defense if the sexual harassment was committed by a ‘proxy’ or ‘alter ego’ of the defendant. (Second Circuit Rules that Employer Cannot Raise Faragher/Ellerth Affirmative Defense for “Alter Ego” or “Proxy” Harassment by Cullen and Dykman LLP)

3. An internal investigation doesn’t automatically shield employees from dismissal:

“The Second Circuit’s holding regarding Title VII’s participation clause is notable because it seemingly permits employers to fire an employee due to the employee’s participation in an internal investigation as long as the investigation is not connected to a formal EEOC charge.” (Second Circuit Issues Significant Rulings Regarding Internal Investigations and the Faragher/Ellerth Defense by Proskauer Rose LLP)

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