Who’s a Supervisor?, Quirky Question # 102

Quirky Question # 102:

We’ve tried hard to institute and enforce an effective sexual harassment policy.  Nevertheless, we still occasionally receive sexual harassment complaints from some of our employees.  Recently, an employee sued us for sexual harassment.  She claimed that she reported the harassment to a relatively low level supervisor and that he failed to take any action in response to her complaint.  She said the harassment intensified after her report.We did not even know she complained.  The “supervisor” (who does not have any hiring or firing authority) never said anything to anyone, let alone someone in our HR Department.  If anyone who truly is in management had been apprised of this problem, we would have investigated and, if appropriate, addressed the issue.  Our employee’s attorney claims that the knowledge of our low level supervisor is imputed to the company.  Can this be right?

Dorsey’s Analysis:

The question of who constitutes a supervisor or a manager is an issue the courts have grappled with for many years, without much consensus.  The divergence of judicial opinions relating to this issue likely reflects the competing interests at stake.  On the one hand, courts want companies to take their obligations to their employees seriously, implementing reasonable measures to eliminate sexual harassment or to comply with other employment obligations, whether based on statute or common law.  On the other hand, courts do not want to create an unfair legal standard by imposing liability on employers under federal or state employment statutes or common law theories by holding that knowledge possessed by a very low level supervisor is imputed to the corporation.  The direction a particular court leans when balancing these competing interests often determines how low or how high in the management hierarchy a “supervisor’s” knowledge will imputed to the corporation.

As implied above, this issue can arise in a variety of contexts.  For example, as in the Quirky Question # 102, the issue of who is a supervisor may be critical when evaluating liability in the sexual harassment context or in addressing other types of discrimination claims.  If an individual who engages in the harassing behavior is a high level manager or executive, whose conduct is imputed to the corporation, the company will likely be held liable for this individual’s behavior.  Similarly, if an individual to whom a report of harassing conduct is made is a manager or executive and that individual fails to take appropriate action in response (e.g., reporting the claim to HR, or if so empowered, initiating an investigation), the manager’s failure to act can establish liability for the company.  But, should the same standard apply when the individual who engages in the harassing conduct or to whom the initial complaint is made is a low level supervisor, without hiring/firing authority or the ability to discipline other employees?  In this factual context, should the company be held liable for this individual’s actions or failure to act?

The question of whose knowledge may be attributed to the company arises in contexts besides sexual harassment or other discriminatory conduct.  For example, imagine that an applicant had a domestic assault charge brought against him and that this unfortunate circumstance was known to a friend, who held a low level supervisory role at the company where the employee was applying.  If the company hired this individual and he later assaulted a co-worker, could the injured employee persuasively argue in a negligent hiring case that the low level supervisor’s knowledge of the domestic should be imputed to the company?

In the recent case of Huston v. The Proctor & Gamble Paper Products Corporation, No. 07-2799 (3d Cir. June 8, 2009), the appellate court affirmed the summary judgment dismissal of the plaintiff’s sexual harassment and retaliation lawsuit.  The fundamental issue in the Hutson case was whether the knowledge of two low level supervisory employees, who allegedly were aware of certain harassing conduct directed at Hutson and others, should be imputed to the corporation.

The Hutson facts were relatively simple.  Hutson worked in the control room of a P&G plant, monitoring large paper manufacturing machines.  Other technicians worked in the control room with her.  Hutson claimed that several of her male co-workers engaged in inappropriate conduct constituting sexual harassment, including exposing themselves.  As soon as she reported the alleged conduct to a senior level manager and a Human Resources manager, P&G promptly instituted an investigation.  Although Hutson’s principal allegations were not corroborated (indeed, they were vehemently denied), P&G still imposed discipline on a number of the technicians working in the control room for other problematic behaviors.

After later being terminated for falsifying data regarding the machines she was charged with monitoring (conduct admitted by Hutson), she claimed that she was a victim of sexual harassment and retaliation.  Because two of the other workers in the control room had certain supervisory responsibilities, including reporting on other technicians who submitted falsified data, Hutson contended that the knowledge possessed by these two individuals (prior to Hutson’s formal complaint) should be imputed to the corporate defendant.

Neither the District Court nor the appellate court bought her argument.  The Third Circuit took the opportunity to clarify the law of the circuit regarding the question of when and under what circumstances a supervisor’s knowledge should be imputed to the company.  The appellate court noted that management level employees have constructive notice of a hostile work environment when “an employee provides management level personnel with enough information to raise a probability of sexual harassment in the mind of a reasonable employer.”  (Citations omitted.)  The question then was whether the two low level supervisors in the P&G control room, who held the positions of Process Coach and Machine Leader respectively, were management-level employees whose knowledge could be imputed to the defendant.

In resolving this issue, the appellate court looked to agency principles, observing that Congress had specifically directed the courts to consider agency principles when adjudicating Title VII claims.  The court then looked to the Restatement (Third) of Agency, which states that an agent’s knowledge is imputed to the corporation if “knowledge of the facts is material to the agent’s duties . . ..”  The court summarized the position articulated in the Restatement – “there are two parameters limiting when knowledge of facts known by an agent is imputed to the principal: the agent’s duties to the principal; and the materiality – or significance – of the facts in question to those duties.”  (Emphasis in original.)  If the supervisor’s duties to the company did not encompass responsibilities for personnel and/or human resources issues, or if the facts demonstrated that the complaint were outside the scope of the supervisor’s duties, the supervisor’s knowledge should not be imputed to the company.

Applying this analytical framework to the sexual harassment claims brought by Hutson, the court stated, “We thus conclude that employee’s knowledge of allegations of co-workers’ sexual harassment may typically be imputed to the employer in two circumstances:  first, where the employee is sufficiently senior in the employer’s governing hierarchy, or otherwise [is] in a position of administrative responsibility over employees under him, such as a departmental or plant manager, so that such knowledge is important to the employee’s general managerial duties.”  * * * “Second, an employer’s knowledge of sexual harassment will be imputed to the employer where the employee is specifically employed to deal with sexual harassment.”  The court pointed to HR representatives, Employee Relations representatives and other personnel department employees as falling into this category.

The Third Circuit stressed that for someone to be legitimately characterized as management whose actions bind the company or whose knowledge may be imputed to the company, the employee must be an employee in the governing body of the entity, “as opposed to merely a supervisory employee in the labor force.”  The court further clarified that “mere supervisory authority over the performance of work assignments by other co-workers is not, by itself, sufficient to qualify an employee for management level status.”

Based on this analysis, the Third Circuit affirmed the summary judgment dismissal of Hutson’s claims.  The appellate court found that the two supervisors who worked with her in the P&G control room did not have sufficiently broad managerial responsibilities to have their knowledge imputed to the corporation.  They had no hiring or firing authority and their disciplinary role was extremely limited.  Further, since they were not charged with responsibility for personnel issues, Title VII compliance, eradication of sexual harassment, etc., their knowledge could not be imputed to P&G on this basis.  Interestingly, the court also found that Hutson’s later report of the harassment to two other management-level employees, one with general duties and one with HR responsibilities, undermined her contention that P&G should be held liable for the prior knowledge allegedly possessed by her co-workers in the control room.

The Hutson case provides instructive guidance to the question you posed.  It would appear that the “supervisor” to whom your employee complained of harassment is not sufficiently high in your corporate hierarchy to have his knowledge imputed to the corporation.  Moreover, based on the facts you briefly recounted, it would not appear that this supervisor was charged with HR responsibility, including the elimination of sexual harassment from your workplace.  Given those facts, which need some further development, I would be reasonably comfortable that your company will not be found to have been put on notice by the complaint made.  This conclusion would be bolstered further if your company had a clearly designated Department or individual, who was charged with the responsibility for addressing sexual harassment complaints, information well publicized within your company.

There are at least two other practical implications illustrated by the Hutson case.  First, the Third Circuit’s analysis and the decisions from other courts suggest that companies would be prudent to define carefully the appropriate individuals to whom claims of harassment or other types of discrimination should be reported.  The more broadly that group is defined, the more problematic.  By problematic, I simply mean that to the extent a company expansively defines the group of individuals to whom harassment may be reported, the greater the likelihood a court might conclude (perhaps even quoting from a company handbook) that anybody in management, including low level supervisors, had the responsibility for ensuring the work environment was harassment free.  Therefore, I would recommend against including in an employee handbook the suggestion that anyone who experiences harassment can report concerns to any “member of management” or some comparable phrase.

Second, the Third Circuit opinion and other like analyses suggest that a company may wish to consider carefully how titles are used at a company.  In short, avoid title inflation.  If everyone is a “manager” or a “vice president” of something or other, there is a greater risk that these individuals could be found to be appropriate individuals to whom concerns about the employment environment, whether based on harassment or other issues, should be reported.  Particularly where there is a disconnect between the actual responsibilities performed by these individuals and the titles they are given, companies enhance the complaining plaintiff’s arguments on imputation of knowledge by giving too many employees grandiose titles.

Finally, as stated in the introductory observations, there is a divergence of judicial opinion on these issues.  If you would like to see a case at the opposite end of the analytical spectrum, take a look at Bryant v. Livigni, 8 I.E.R. Cases (BNA) 1348 (Ill. Ct. App. 1993), a case supporting the maxim that ‘bad facts make bad law.’

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