Wednesday, July 6, 2011

The “when” of counting employees for damage caps in federal discrimination cases

Counting is wonderful,
Counting is marvelous,
Counting’s the best thing to do.
Counting is happiness,
Counting is ecstasy,
I love to count, don’t you?
– Counting Is Wonderful, Sesame Street
Under the Civil Rights of 1991, the sum of the non-economic damages (future pecuniary losses, emotional pain, suffering, inconvenience, mental anguish, loss of enjoyment of life, other non-pecuniary losses, and punitive damages) in Title VII, ADA, and GINA cases is capped between $50,000 to $300,000, depending on how many employees a defendant “has … in each of 20 or more calendar weeks in the current or preceding calendar year.” According to Hernandez-Miranda v. Empresas Díaz Massó, Inc. (1st Cir. 6/29/11), when you count employees for purposes of determining the number of employees depends on how you define “current.”

In that case, a jury awarded the plaintiff $300,000 in damages in her sexual harassment lawsuit, in which she proved that during her employment as a construction worker, she was forced to perform oral sex on a supervisor multiple times and was also subjected to extreme, continuing sexual abuse by coworkers and supervisors, all of which her employer ignored. The district court reduced the jury award to $50,000, using the year of the verdict to measure the number of employees.

The 1st Circuit, falling in line with other cases from the 4th, 5th, and 7th Circuits, concluded that the “current” year is the year the discrimination occurred, not the year of the verdict. In doing so, the court examined the policies behind the statute’s caps on damages:
It is clear that Congress did intend to protect …smaller employers … from ruinously large awards…. Congress, we believe, intended such protection for those who were small employers at the time of the discrimination, and not those who by happenstance or design became smaller employers between the time of discrimination and the time of the verdict.
This construction best serves Title VII’s purpose of encouraging resolution of disputes before litigation commences. This purpose … is best advanced by providing clarity and certainty as to the size of potential damage awards from the outset of a dispute. [Non-economic damages] are inherently more difficult to value precisely than the back pay damages traditionally available under Title VII, rendering this type of clarity and certainty all the more important in allowing litigants to make informed decisions about settlement.
Clarity and certainty of potential liability also allows for both sides to set realistic litigation budgets and evaluate whether cases are worth bringing and defending. Such clarity and certainty allows businesses to set adequate reserves, disclose those reserves in annual reports as necessary, and make assessments about whether and how much to insure against the risk of litigation.
Therefore, a court must count the number of people employed when the discrimination took place. The number of employees at the time of the verdict is irrelevant.

The court also concluded that because an employer must affirmatively move to apply the damage caps, it is the employer’s burden to prove the number of employees during the relevant time period.

This case has three important takeaways for businesses:
  1. Depending on a business’s size, these caps can have sizeable implications. For example, the ruling in Hernandez-Miranda increased the recovery from $50,000 to $200,000. If you are a small employer (500 or fewer employees) defending a Title VII, ADA, or GINA lawsuit, you omit evidence of the number of employees at your peril.
  2. If it makes a difference, introduce evidence of the number of employees both during the year of the discrimination and during the year of the trial. Until the Supreme Court weighs in on this issue, the law is in flux. There is no guarantee that this court will have the final say on this issue, and a different circuit can reach a different result.
  3. Ohio’s tort reform statute, which also provides caps for punitive damages, but which lacks the same language as its federal counterpart, is likely unaffected by Hernandez-Miranda. Ohio small employers defending state-law claims should not necessarily look to the Hernandez-Miranda ruling for relief.