Last Wednesday a federal jury handed down a $11.9 million verdict in favor of a toy company employee. The huge verdict is the result of three common mistakes I have seen many businesses make over the course of my career: (1) having poorly written complaint procedures in their employee handbooks; (2) failing to train and oversee management; and (3) commingling the business and human resource operations of parent, subsidiary, and related entities — which can result in the “joint employer” liability of all entities for just one supervisor’s misconduct.
THE TOY COMPANY CASE IS A CAUTIONARY TALE
Danielle Rennenger worked at a ToyQuest call center in Iowa. According to the Des Moines Business Record, Renneger alleged in her lawsuit that her direct supervisor and a co-worker created a hostile work environment with vulgar and harassing remarks as well as gestures and physical advances toward Rennenger and other women. At one point, the supervisor grabbed Rennenger’s head and forced it into his crotch.
“Danielle tried to complain and get them to stop, but Downey basically told her that Hong Kong, referring to the owners, doesn’t care about women,” according to a release from the Newkirk Zwagerman law firm, which represents Rennenger and other plaintiffs.
U.S. District Judge James Gritzner said in an August 3 ruling, “Fundamentally, we know that there’s really no dispute about what happened to Ms. Rennenger in terms of the call center and the behavior of people in the call center.”
After hearing the evidence, a federal jury awarded Rennenger $10 million in punitive damages, $1.8 million for past and future emotional distress, and nearly $83,000 in lost wages.
Sexual harassment lawsuits brought by other ToyQuest employees are also pending.
MISTAKE NUMBER ONE: TOYQUEST DID NOT HAVE AN ADEQUATE COMPLAINT POLICY
The ToyQuest case judge noted that “[I]t seems rather clear in this record that it was very difficult for employees there to know how to proceed in the event that their supervisor was actually the harasser.”
Failing to have a clear policy as to how victims of sexual harassment and discrimination can complain — especially when management or ownership is alleged to be the harasser — is a surefire way for businesses to get in trouble. The typical mistakes I see are poorly drafted policies, policies that do not reflect the actual organizational structure of the subject company, policies that contradict themselves, and policies that are hard to understand or are ambiguous.
Avoid mistake number one: have a bombproof complaint and sexual harassment/discrimination policy and review it annually with counsel.
MISTAKE NUMBER TWO: TOYQUEST DID NOT TRAIN AND OVERSEE MANAGEMENT
ToyQuest management at the Iowa call center was out of control. Management training and oversight is critical to create a management team and work environment that is free from harassment and discrimination. Equally so, management training is essential so that management knows how to apply and comply with the complaint provisions in the employee handbook.
Avoid mistake number two: conduct periodic management training with counsel and stay ahead of the myriad of problems that come with ignorant or undertrained management.
MISTAKE NUMBER THREE: TOYQUEST APPEARS TO HAVE COMMINGLED ITS DIVISION’S BUSINESS OPERATIONS
After the lawsuits were filed ToyQuest’s parent company created multiple companies, apparently in an effort to avoid liability, according to Rennenger’s lawyers. The federal judge agrees: “And there is a very complex series of positions that the various companies have taken here absolutely contradictory of one another in terms of their relationship and how they were set up. Depending upon which executive you talk to, you get a completely different version of how the call center was set up and who employed those people. In the process of looking at the entire picture of this case, there is substantial evidence of active avoidance of liability,” he said in the Aug. 3 ruling.
If your company has a parent, subsidiary, or related company, it is very easy to expose all your businesses to liability for the “sins” of one. For example, running HR operations from a central location can expose your businesses to the claim that they are a “joint employer” and thus all liable for harassment which occurred only at one business.
Avoid mistake number three: if you are operating more than one business and are concerned regarding commonality of operations, ownership, or control — factors which can expose all the businesses to joint employer liability — contact counsel to determine methods to keep the businesses separate.
Don’t be like ToyQuest. Instead, understand “joint employer” liability before your businesses — emphasis on plural — get sued and make any necessary changes.
Businesses should stay ahead of harassment, discrimination, and joint employer problems by staying proactive with their policies, training, and organizational structuring. ToyQuest had the chance to do these things but failed — abysmally — to do so.
Speaking of failing to take advantage of a chance to do something the right way, enjoy “I Had My Chance” by Morphine, one of my top ten favorite blues songs: