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Punitives Against Employer Can Exceed Employee's Liability

The size of a punitive damage verdict against a Duke University worker for sex harassment did not limit the punitive award against the school, the Supreme Court held July 13.

The first-impression holding affirms $500,000 in punitives against the university for ratifying the worker’s misconduct — even though the worker himself was only assessed $5,000.

Duke argued that, under prior holdings, an employer’s damages could not exceed the employee’s in a case of vicarious liability.

The high court disagreed, saying those precedents only limited a plaintiff’s compensatory damages. Applying the same rule to punitives would undermine the policy of punishment and deterrence, the court said.

The case is Watson v. Dixon (North Carolina Lawyers Weekly No. 0-06-0900, 9 pages). The opinion was written by Chief Justice Henry Frye.

Last February, an appeals panel also upheld the award against Duke, saying the school’s failure to act despite the plaintiff’s repeated complaints went beyond merely ratifying the harasser’s conduct.

The high court’s ruling reaches the same result but isn’t limited to the specific facts of the case, according to Durham attorney Stewart Fisher, a lawyer for the plaintiff.

“This ruling is much broader,” he said. “I think the Court of Appeals decision could have been read to require some sort of ‘ratification-plus’ standard to impose higher punitives on an employer. The Supreme Court said ratification alone is enough. Once you’ve got that, submitting a separate punitive issue is proper.”

The Watson lawsuit was filed in 1992, before a cap on punitive damages was enacted in Chapter 1D. Duke’s punitives would have been limited to $300,300 under the new law three times the plaintiff’s $100,100 in compensatories.

Aside from that, the court’s holding in Watson would still apply despite new curbs on vicarious liability claims, according to Fisher.

G.S. Sect. 1D-15(c) provides: “Punitive damages shall not be awarded against a person solely on the basis of vicarious liability for the acts or omissions of another. Punitive damages may be awarded against a person only if that person participated in the conduct constituting the aggravating factor giving rise to the punitive damages, or if, in the case of a corporation, the officers, directors or managers of the corporation participated in or condoned the conduct….”

Said Fisher: “There’s nothing in the new act with regard to the separation of punitives issues. The act makes it clear that an employer may still be liable for punitives where it has directly participated in or condoned an employee’s misconduct. The concept of ratification has been written into the statute, which applies to all kinds of tort claims, not just intentional torts.”

Facts

The plaintiff in Watson began working at a division of Duke’s medical center in 1991. According to the record, a co-worker embarked on an eight-month campaign of harassing behavior that included inappropriate sexual touching, graphic drawings and obscene comments.

The university never imposed any serious discipline on the plaintiff’s co-worker even after she reported problems to her supervisor and personnel officials. A division head finally stepped in and transferred her to another department in March 1992.

As a result of the harassment, the plaintiff suffered a variety of ailments, including crying spells, vomiting, headaches, nightmares and insomnia. She was later diagnosed with depression and post-traumatic stress disorder.

The plaintiff sued the co-worker and Duke University, alleging emotional distress, negligent hiring and retention, and assault and battery.

The jury awarded the plaintiff $100 for the co-worker’s battery, and $100,000 for the intentional infliction of emotional distress caused by the co-worker and ratified by Duke officials.

Based on the emotional distress evidence, the jury also handed down punitives against the co-worker for $5,000 and against Duke for $500,000. Both defendants appealed.

In a 1998 ruling, an appeals panel upheld the judgments against the co-worker for intentional infliction of emotional distress, and against Duke for ratification. However, the panel reversed and remanded the punitive damage awards.

After granting a petition for rehearing, the appeals panel upheld the punitives.

Judge Linda McGee dissented, saying the liability of an employer under a theory of respondeat superior or ratification could not exceed that of the employee.

That dissent sent the case to the Supreme Court on the punitives issue. The justices declined Duke’s request to review the compensatory awards.

Ruling

The high court affirmed, saying the employer/employee limit did not apply to punitive damages.

The court distinguished the cases cited in Judge McGee’s dissent, including the 1942 holding in Pinnix v. Griffin, 221 N.C. 348, 20 S.E.2d 366. Those opinions only addressed an employer’s liability for compensatory damages, which serve a different purpose from punitives.

“The objective of compensatory damages is to restore the plaintiff to his original condition or to make the plaintiff whole,” wrote Judge Frye. “Thus, it is axiomatic that an employer’s liability for compensatory damages based on ratification of the employee’s tortious conduct may not exceed the employee’s liability for that conduct. The plaintiff … is not entitled to additional compensation solely because of the ratification by the employer.”

Unlike compensatory damages, the purpose of punitives is to punish the defendant and deter others, the court said.

“Limiting an employer’s punitive damages to the amount assessed against the employee whose tortious conduct the employer ratified would chill the deterrent and penal effects of punitive damages on the employer,” said the court. “An employer … should not be allowed to use its employee’s limited financial resources as a shield against punitive damages.”


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