The last post discussed the importance of training employees not to let prank callers talk them into strip searching co-workers. Today’s lesson is why, when interviewing people for supervisor positions, you should ask them how they deal with smelly, frequently absent employees with open sores.

Charlene Roby worked for McKesson Corporation for 25 years. She suffered panic attacks, which caused her to miss work and run afoul of McKesson’s attendance policy. Also, the medication she took made her smell bad. If that weren’t enough, she had open sores on her arms from nervously digging her nails into her skin.

Karen Schoener, Roby’s supervisor, was not overly sympathetic. Although she knew it was medication-related, she criticized Roby’s body odor to other employees. She also described the open sores as “disgusting” and ostracized Roby (by ignoring her greetings and questions, making disapproving facial expressions, making her cover phones during office parties, and belittling her in front of co-workers).

Roby was disciplined for her absences, even though McKesson knew they were related to her condition. Ultimately, McKesson terminated Roby’s employment. Roby became suicidal and developed agoraphobia. [Agoraphobia, of course, is a fear of open spaces and crowds. It should not to be confused with angoraphobia, a fear of fluffy rabbits.]

Roby sued McKesson and Schoener, alleging wrongful termination and violations of the Fair Employment and Housing Act (harassment, disability discrimination, and failure to accommodate). The jury reached a verdict awarding Roby $1.5 million in past economic, $1.5 million for future economic damages, $1.5 million for past noneconomic damages, and $1.5 million for future noneconomic damages. The jury (displaying the math skills that makes corporate defendants wince) then specified on the verdict form that they were awarding total damages of $1.5 million. The court sent the jury back to deliberate further/recalculate. They came back with compensatory damages of $3.5 million against McKesson and $500,000 against Schoener. They also awarded $15 million in punitive damages against McKesson and $3,000 against Schoener. Defendants appealed.

The appellate court reduced the economic damages against McKesson to $2 million and threw out the verdict against Schoener (which was based on the harassment claim). It didn’t feel that Schoener’s behavior rose to the level of actionable harassment. Removing harassment reduced the damage award by an additional $600,000. Finally, the court of appeal reduced the punitive damages from $15 million to $2 million.

Then the California Supreme Court got involved. In a decision issued November 30, 2009, it (1) decided that the economic damage awards were a hopeless mess; (2) reinstated the harassment verdict; and (3) agreed that the punitive damages were excessive, but disagreed with the court of appeal’s as to the proper amount.

On the first issue, the court was going to send the case back for a new trial, but Roby’s attorney asked the court to instead remove those elements of the damage award that seemed potentially duplicative. So the court did so.

To understand the second issue, you need to understand that individuals cannot be liable for discrimination, but they can be liable for harassment. One rationale for the difference is that discrimination involves official actions of the employer (e.g. hiring, firing, promotion, demotion). Harassment, in contrast, focuses on things an individual can do (or say) to make the work  environment hostile. As the court expressed it, “discrimination refers to bias in the exercise of official actions on the part of the employer, and harassment refers to bias that is expressed or communicated through interpersonal relations in the workplace.” In tossing the harassment award, the court of appeal said that personnel management decisions couldn’t support the harassment claim because they were part of the discrimination claim.

The supreme court disagreed with the court of appeal’s premise that the same conduct couldn’t be both discrimination and harassment. It explained that official employment actions (i.e. discrimination) can communicate a hostile message (i.e. can be harassing). This is bad news for employers. By blurring the distinction between these two types of wrongful conduct, the court makes it easier for employees to proceed with both types of claims. It’s also bad news for managers. The law was clear before that managers could not be individually liable for carrying out personnel decisions. Now, it seems, the courts and juries are going to evaluate whether those personnel decisions were carried out in a way that sent a harassing message.

The third issue decided by the supreme court was the amount of punitive damages. The court explained that you need to look at (1) the degree of reprehensibility, (2) the disparity between the harm suffered by the plaintiff and the size of the award, and (3) “the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.” The court discussed these various "guideposts" at length, breaking reprehensibility down into five factors . . . blah, blah, blah. Ultimately, the court decided that the punitive damage award could not exceed the compensatory award. It therefore reduced the punitive damages to $1.9 million. (What was that court of appeal thinking awarding $2 million!) Two dissenting justices wrote that they would have allowed punitive damages of twice the compensatory award.

The analysis is so fact-specific that no one should count on the 1:1 ratio as the upper limit of a punitive damage award. That only applies in cases of “relatively low reprehensibility.” There’s also some helpful language about considering the defendant’s wealth. The majority opinion states that it’s a factor in determining the deterrent effect of the award, “but the punitive damages award must not punish the defendant simply for being wealthy.” Overall, I supposed the punitive damage limit is good news for employers. But if you’re debating the size of a punitive damage award, haven’t you (by definition) already lost?