Runaway Punitive Damages?
Previously here on the Blawg, we discussed “runaway attorneys’ fees” cases, including one in which the Supreme Court approved fees that were 33 times the amount awarded to the plaintiff.
A similar phenomenon that has generated lots of press recently is ”runaway punitive damages.” Multi-million-dollar employment law verdicts are becoming more and more routine.
A recent federal case sheds some light on how much $$$ is too much . . .
The Lawsuit
Lynn Noyes sued Kelly Services Inc., claiming that she was discriminated against based on religion. She alleged that the company failed to promote her because she didn’t belong to a religious group called the Fellowship of Friends. According to its web site, the Fellowship is devoted to practicing the “art and science of awakening.”
Noyes’ claim centered around her failure to be promoted into a software development manager position. The hiring manager was a member of the Fellowship and selected a member of that group instead of Noyes. Noyes complained, citing previous complaints of favoritism toward the Fellowship. According to Noyes, more than a third of the full-time employees at Kelly’s Nevada City office — and 9 of the 13 in her specific work group — were Fellowship members.
Despite Noyes’ complaints, the company refused to reverse the promotion decision. Noyes sued.
The Verdict
The jury ruled in Noyes’ favor, awarding her $647,000 in compensatory damages and a whopping $5.9 million in punitive damages. Not too surprisingly, the company appealed.
The Appeal
The U.S. District Court for the Eastern District of California applied the following three-question test to determine whether the punitive damages award was excessive:
- How reprehensible was the defendant’s conduct?
- Is there a disparity between the harm suffered by the plaintiff and the amount awarded?
- How does the amount awarded compare to similar cases?
The court concluded that Kelly Services’ conduct was “sufficiently reprehensible” to justify at least some punitive damages. The court found substantial evidence that the manager acted with “oppression, malice or fraud” and that a senior HR vice president of the company “knew of and ratified the conduct” and that “deceitfulness was afoot.”
However, the court concluded that an award 9 times the amount of compensatory damages was too excessive under the circumstances and in light of comparable cases. It found that the company’s actions didn’t rise to the “egregious” level that would justify such an award.
The Result
The court reduced the punitive damages to a 1:1 match of the $647,000 compensatory damages award, leaving Noyes with just shy of $1.3 million. It also awarded Noyes more than $700,000 in attorneys’ fees.
Noyes reportedly plans to appeal the reduction.
The Lesson
No employer wants to face the prospect of punitive damages. Avoid any hint of “oppression, malice or fraud” and allow no “deceitfulness afoot.” The more reprehensible the conduct, the more likely it is that a court will allow big punitives.
In short, always follow the Employment Law Golden Rule: treat employees the way you would like to be treated — honestly, fairly, objectively and consistently on a timely basis.
