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EEOC v. Management Hospitality of Racine, Inc., No. 10-3247 (7th Cir. Jan. 9, 2011)

The Seventh Circuit substantially upholds a jury verdict that the employer, the owner of a franchise restaurant, allowed two of its teen employees to be sexually harassed in violation of Title VII. The panel, in affirming denial of judgment as a matter of law, touches on several areas that recur in such cases - making the opinion a good template for future litigation and counselling in this area. The panel nonetheless reverses liability against the personnel company that managed the restaurant's employees, and remands for a new trial on that issue.

EEOC v. Management Hospitality of Racine, Inc., No. 10-3247 (7th Cir. Jan. 9, 2011): The EEOC sued three defendants - the franchisee corporation (Management Hospitality or "MHR"), the franchisee owner/operator Salauddin Janmohammed, and a personnel company (Flipmeastack, Inc.) owned by the franchisee's spouse. The EEOC alleged that supervisors at the restaurant touched, and made sexual remarks and propositions to, young female employees. The jury awarded compensatory verdicts of $1,000 and $4,000 to two teen employees, plus a punitive award of $100,000 - the maximum award allowable under Title VII to a company with 101-200 employees on its payroll.

Affirming the jury verdict, the Seventh Circuit addresses issues that tend to recur in such cases:

1. The harassment took the form of comments, propositioning and some touching. In upholding the jury's verdict that the behavior was severe or pervasive, the panel agrees that the age difference between the teen employees and the adult supervisors was a relevant factor. Moreover, although one of the employees could only positively recall three incidents of harassment in a four-week period, it was sufficient for the employee to testify more generally that the harassment occurred during every shift.

2. The court holds that the jury was not required to credit, as evidence that the employee was not subjectively offended by the behavior, a screen shot from one of the employee's social-networking pages of a sexually-explicit joke. "As the district court observed, 'sharing jokes with friends in an online community is vastly different than being propositioned for sex by a supervisor at work.'"

3. Regarding the employer's defense under Faragher/Ellerth that it supposedly had an effective anti-harassment policy, the panel holds that "a rational jury could have found that the policy and complaint mechanism were not reasonably effective in practice," because the managerial employees did not carry out their duties (often ignoring employee complaints), delayed investigations for months, and in fact were themselves possibly engaged in harassing behavior. Managers also testified that they were not given the training required under the company's own procedure. The anti-harassment policy was also reported to employees without identifying a point person to receive complaints, and in a confusing poster that mostly concerned other kinds of emergencies, such as tornadoes and poisoning. The panel also affirms that, in spite of the confusing reporting chain, the two teen employees made reasonable efforts to complain.

4. The panel affirmed an award of punitive damages, agreeing that a jury could find that the employer did not engage in good faith efforts to prevent harassment. Among other things, the record revealed that the anti-harassment policy actually discouraged complaints, because it warned employees of "severity of knowingly making a false accusation of discrimination or harassment." This language was apparently added after the company owner was personally sued for harassment.

The panel nonetheless reverses liability against Flipmeastack, ordering a new trial as to that defendant. That defendant - which maintained the human resource function for the franchisee - argued, and the panel agrees, that it received no notice that it would have to defend against a "control" theory in the post-trial motions, i.e., that Flipmeastack so controlled the employment relationship that it is appropriate to regard it as the de facto employer. Finally, as a result of the reversal, an injunction against that defendant (requiring the company to adopt new anti-harassment procedures) was also dissolved and the punitive damage award reduced to $50,000 (because the remaining employer in the case employed fewer than 100 employees).

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