Courts Clarify Damages Caps Under Federal Employment Discrimination Statutes

Counting Employees

One problem with these limits is that the statute does not specifically state when employees should be counted for purposes of determining the relevant cap. This question was addressed recently by the First Circuit Court of Appeals in Hernandez-Miranda v. Empresas Diaz Masso, Inc., No. 10-1639, 2011 WL 2557012 (1st Cir. 6/29/2011). The plaintiff in that case, a former safety officer of a construction company, proved at trial that she was subjected to extreme sexual harassment and abuse at work, but her damages were limited to $50,000 pursuant to the statutory cap under Title VII because the construction company showed that it employed only 25 employees during the calendar year during which the court entered its judgment.

On appeal, the plaintiff argued that the cap should have been determined based on the number of people employed by the company at the time she was harassed, not the time the judgment was entered. Because the construction company employed between 200 and 300 employees at the time of the unlawful discrimination, the plaintiff argued that a higher limit on damages should have applied, and she should have been allowed to recover up to $200,000 in damages.

The company, on the other hand, argued that Title VII's damages caps were designed to save smaller employers from damages awards that could put them out of business, and it should matter how large the company is at the time the judgment is entered ' not how large it was at the time of the discrimination, which is typically years before trial.

The Court of Appeals admitted that the company's argument was “far from frivolous,” but it was not persuaded. Rather, it agreed with the plaintiff and held that the applicable cap is determined by the number of individuals employed on the date of the discrimination. Its reasoning was based on the way courts interpret Title VII's definition of “employer,” which also depends on the number of individuals employed by the company. Specifically, a company is only considered an “employer” for purposes of Title VII if it employs at least 15 individuals. Because courts determine whether an employer is an “employer” under Title VII by counting the number of employees at the time of the discrimination, the First Circuit held that the applicable damages cap should also be determined as of the date of the discrimination. Also, the court reasoned that its interpretation will allow companies “[c]larity and certainty of potential liability” for purposes of “set[ting] realistic litigation budgets and evaluat[ing] whether cases are worth bringing and defending.” Moreover, the court pointed out that its interpretation prevents employers from “engaging in gamesmanship by structuring companies, or timing the progress of lawsuits, to maximize gain or minimize loss.”

This decision is consistent with the only other federal appellate courts that have considered this issue, so it is not likely to be disturbed unless the U.S. Supreme Court intercedes. See Depaoli v. Vacation Sales Assocs., 489 F.3d 615 (4th Cir. 2007); Vance v. Union Planters Corp., 209 F.3d 438 (5th Cir. 2000); Hennessey v. Penril Datacomm Networks, Inc., 69 F.3d 1344 (7th Cir. 1995) (by implication).

While the Hernandez-Miranda decision was bad news for the construction company in that case, it is not necessarily bad news for the business community generally. The First Circuit was correct that its decision will allow companies to determine their maximum potential liability for damages in a Title VII lawsuit from the day the lawsuit is filed simply by calculating the number of employees it had on the date of the alleged discrimination. Further, just as the construction company tried to take advantage of its shrinking numbers during the pendency of the lawsuit, companies that are thriving need not worry that their liability will increase ' possibly by hundreds of thousands of dollars ' because they grow after a discrimination lawsuit is filed.

'Per-Party' Damage Caps

Another major issue relating to the statutory caps under federal law appears to be settled, at least for now. Courts of Appeals for the Sixth, Seventh, Tenth, and DC Circuits have held that the caps limit the total damages that may be awarded to each plaintiff who files an employment discrimination lawsuit on a “per-party” basis, regardless of how many times the employer violates the statute. Nevertheless, plaintiffs in other areas of the country continue to insist that the statutory caps should apply on a “per-claim” basis, meaning that a court could award up to $300,000 (for companies employing more than 500 individuals) in compensatory and punitive damages for each instance of discrimination proved.

This issue has become particularly important in recent years because more plaintiffs than ever are tacking on retaliation claims to their traditional discrimination lawsuits. If a court were to interpret the damages cap according to the “per-claim” theory, then a company's potential liability would increase dramatically if the plaintiff alleges that he or she was subject to multiple instances of discrimination, or if he or she alleges discrimination and retaliation in the same lawsuit.

In July, the Fifth Circuit Court of Appeals took its turn to address this important issue. In Black v. Pan American Laboratories, No. 09-51092, 2011 WL 2673096 (5th Cir. 7/11/2011), a former pharmaceutical sales representative proved at trial that her employer discriminated against her because of her gender by imposing a higher sales quota on her than a comparable male sales representative. The plaintiff also alleged that she was discharged because of her gender and in retaliation for complaining about her discriminatory treatment. A jury awarded the plaintiff $3.45 million at trial, including more than $3 million in compensatory and punitive damages. The trial court reduced the amount of compensatory and punitive damages to $200,000 pursuant to the statutory cap applicable to companies that employ between 201 and 500 people. The plaintiff appealed, arguing that she was entitled to $200,000 for each violation of Title VII. Because the jury had found that the company violated Title VII three times, the plaintiff argued that she was entitled to three-times the applicable cap, or $600,000.

The Fifth Circuit disagreed. Citing similar decisions in the Sixth, Seventh, Tenth and DC Circuits, the Fifth Circuit adopted the “per-party” interpretation of the damages cap, which it found was compelled by the plain language of Title VII. Like the Hernandez-Miranda case, the Black decision is unlikely to be disturbed because every federal Court of Appeals that has addressed the issue has adopted the “per-party” interpretation of the federal statutory caps.

Unfortunately, the federal damages caps do not tell the whole story. Almost every state has employment discrimination laws that mirror Title VII and the other federal statutes, and many state statutes do not limit the amount a plaintiff can recover. Because the statutory caps under federal law do not limit the amount a plaintiff can recover under state discrimination laws, a plaintiff may be able to recover much more than the federal limits depending on the relevant state law.

Age Discrimination

Also, it should be noted that the statutory caps do not apply to federal age discrimination claims brought pursuant to the Age Discrimination in Employment Act (“ADEA”). The ADEA has its own remedies provision, which is modeled after the Fair Labor Standards Act (“FLSA”). Like the FLSA, the ADEA does not authorize compensatory or punitive damages for age discrimination, so there is no need to limit the amount of damages that may be awarded. Rather, a successful ADEA plaintiff is entitled to lost wages and, if willful discrimination is proved, liquidated damages equal to the amount of lost wages.

E. Fredrick Preis, Jr. and Joseph R. Hugg are attorneys in the Labor and Employment section at the Lemle & Kelleher, L.L.P., which represents management. Preis can be reached at [email protected], and Hugg can be reached at [email protected].

Recent decisions by federal Courts of Appeals in the First and Fifth Circuits shed light on two issues critical to the question every employer asks after being served with an employment discrimination lawsuit: “What's the worst that can happen?”

As originally enacted, Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination based on gender, religion, national origin, race, and color, allowed plaintiffs to recover only for lost wages (i.e., back pay and front pay) starting two years before the date the plaintiff filed a charge with the EEOC. However, plaintiffs have been able to recover much more since 1991. Specifically, a 1991 amendment to the Civil Rights Act expanded the scope of damages recoverable under Title VII and other employment discrimination statutes (such as the Americans with Disabilities Act (“ADA”) and, now, the Genetic Information Nondiscrimination Act of 2008 (“GINA”)) if a plaintiff proves intentional discrimination. A successful plaintiff may now recover compensatory damages, such as emotional distress, and punitive damages. Although a plaintiff may now recover more than just lost wages, the good news is that the total amount of compensatory and punitive damages awardable is limited by statutory limits or “caps,” which depend on the number of individuals employed by the company that was found liable for unlawful discrimination.

Title VII does not apply to employers that employ less than 15 employees, and the limit on damages that may be awarded against companies that employ at least 15 but no more than 100 employees is $50,000. The cap increases to $100,000 for companies that employ at least 101 employees but no more than 200 employees. Companies that employ at least 201 but no more than 500 employees cannot be liable for more than $200,000 in damages, and companies with 501 or more employees cannot be liable for more than $300,000 in damages.

Counting Employees

One problem with these limits is that the statute does not specifically state when employees should be counted for purposes of determining the relevant cap. This question was addressed recently by the First Circuit Court of Appeals in Hernandez-Miranda v. Empresas Diaz Masso, Inc., No. 10-1639, 2011 WL 2557012 (1st Cir. 6/29/2011). The plaintiff in that case, a former safety officer of a construction company, proved at trial that she was subjected to extreme sexual harassment and abuse at work, but her damages were limited to $50,000 pursuant to the statutory cap under Title VII because the construction company showed that it employed only 25 employees during the calendar year during which the court entered its judgment.

On appeal, the plaintiff argued that the cap should have been determined based on the number of people employed by the company at the time she was harassed, not the time the judgment was entered. Because the construction company employed between 200 and 300 employees at the time of the unlawful discrimination, the plaintiff argued that a higher limit on damages should have applied, and she should have been allowed to recover up to $200,000 in damages.

The company, on the other hand, argued that Title VII's damages caps were designed to save smaller employers from damages awards that could put them out of business, and it should matter how large the company is at the time the judgment is entered ' not how large it was at the time of the discrimination, which is typically years before trial.

The Court of Appeals admitted that the company's argument was “far from frivolous,” but it was not persuaded. Rather, it agreed with the plaintiff and held that the applicable cap is determined by the number of individuals employed on the date of the discrimination. Its reasoning was based on the way courts interpret Title VII's definition of “employer,” which also depends on the number of individuals employed by the company. Specifically, a company is only considered an “employer” for purposes of Title VII if it employs at least 15 individuals. Because courts determine whether an employer is an “employer” under Title VII by counting the number of employees at the time of the discrimination, the First Circuit held that the applicable damages cap should also be determined as of the date of the discrimination. Also, the court reasoned that its interpretation will allow companies “[c]larity and certainty of potential liability” for purposes of “set[ting] realistic litigation budgets and evaluat[ing] whether cases are worth bringing and defending.” Moreover, the court pointed out that its interpretation prevents employers from “engaging in gamesmanship by structuring companies, or timing the progress of lawsuits, to maximize gain or minimize loss.”

This decision is consistent with the only other federal appellate courts that have considered this issue, so it is not likely to be disturbed unless the U.S. Supreme Court intercedes. See Depaoli v. Vacation Sales Assocs. , 489 F.3d 615 (4th Cir. 2007); Vance v. Union Planters Corp. , 209 F.3d 438 (5th Cir. 2000); Hennessey v. Penril Datacomm Networks, Inc. , 69 F.3d 1344 (7th Cir. 1995) (by implication).

While the Hernandez-Miranda decision was bad news for the construction company in that case, it is not necessarily bad news for the business community generally. The First Circuit was correct that its decision will allow companies to determine their maximum potential liability for damages in a Title VII lawsuit from the day the lawsuit is filed simply by calculating the number of employees it had on the date of the alleged discrimination. Further, just as the construction company tried to take advantage of its shrinking numbers during the pendency of the lawsuit, companies that are thriving need not worry that their liability will increase ' possibly by hundreds of thousands of dollars ' because they grow after a discrimination lawsuit is filed.

'Per-Party' Damage Caps

Another major issue relating to the statutory caps under federal law appears to be settled, at least for now. Courts of Appeals for the Sixth, Seventh, Tenth, and DC Circuits have held that the caps limit the total damages that may be awarded to each plaintiff who files an employment discrimination lawsuit on a “per-party” basis, regardless of how many times the employer violates the statute. Nevertheless, plaintiffs in other areas of the country continue to insist that the statutory caps should apply on a “per-claim” basis, meaning that a court could award up to $300,000 (for companies employing more than 500 individuals) in compensatory and punitive damages for each instance of discrimination proved.

This issue has become particularly important in recent years because more plaintiffs than ever are tacking on retaliation claims to their traditional discrimination lawsuits. If a court were to interpret the damages cap according to the “per-claim” theory, then a company's potential liability would increase dramatically if the plaintiff alleges that he or she was subject to multiple instances of discrimination, or if he or she alleges discrimination and retaliation in the same lawsuit.

In July, the Fifth Circuit Court of Appeals took its turn to address this important issue. In Black v. Pan American Laboratories, No. 09-51092, 2011 WL 2673096 (5th Cir. 7/11/2011), a former pharmaceutical sales representative proved at trial that her employer discriminated against her because of her gender by imposing a higher sales quota on her than a comparable male sales representative. The plaintiff also alleged that she was discharged because of her gender and in retaliation for complaining about her discriminatory treatment. A jury awarded the plaintiff $3.45 million at trial, including more than $3 million in compensatory and punitive damages. The trial court reduced the amount of compensatory and punitive damages to $200,000 pursuant to the statutory cap applicable to companies that employ between 201 and 500 people. The plaintiff appealed, arguing that she was entitled to $200,000 for each violation of Title VII. Because the jury had found that the company violated Title VII three times, the plaintiff argued that she was entitled to three-times the applicable cap, or $600,000.

The Fifth Circuit disagreed. Citing similar decisions in the Sixth, Seventh, Tenth and DC Circuits, the Fifth Circuit adopted the “per-party” interpretation of the damages cap, which it found was compelled by the plain language of Title VII. Like the Hernandez-Miranda case, the Black decision is unlikely to be disturbed because every federal Court of Appeals that has addressed the issue has adopted the “per-party” interpretation of the federal statutory caps.

Unfortunately, the federal damages caps do not tell the whole story. Almost every state has employment discrimination laws that mirror Title VII and the other federal statutes, and many state statutes do not limit the amount a plaintiff can recover. Because the statutory caps under federal law do not limit the amount a plaintiff can recover under state discrimination laws, a plaintiff may be able to recover much more than the federal limits depending on the relevant state law.

Age Discrimination

Also, it should be noted that the statutory caps do not apply to federal age discrimination claims brought pursuant to the Age Discrimination in Employment Act (“ADEA”). The ADEA has its own remedies provision, which is modeled after the Fair Labor Standards Act (“FLSA”). Like the FLSA, the ADEA does not authorize compensatory or punitive damages for age discrimination, so there is no need to limit the amount of damages that may be awarded. Rather, a successful ADEA plaintiff is entitled to lost wages and, if willful discrimination is proved, liquidated damages equal to the amount of lost wages.

E. Fredrick Preis, Jr. and Joseph R. Hugg are attorneys in the Labor and Employment section at the Lemle & Kelleher, L.L.P., which represents management. Preis can be reached at [email protected], and Hugg can be reached at [email protected].