Second Circuit adopts proxy liability in sexual harassment cases

If you handle sexual harassment cases, then words like Faragher and Ellerth are very much a part of your vocabulary. They stand for the proposition that an employer is not liable for supervisory harassment if it took effective remedial measures after the employee complained about the hostile work environment. There are a few exceptions to Faragher/Ellerth. The Supreme Court held a few years ago the employer cannot invoke this affirmative defense if the plaintiff suffered retaliation for complaining about the harassment, or if harasser demanded sex in return for favorable treatment at work. The Second Circuit has now recognized another exception to the Faragher affirmative defense: proxy, or alter ego, liability.

The case is Townsend v. Benjamin Enterprises, decided on May 9. I represented Townsend at trial and on appeal. Townsend was harassed by her supervisor, who was also vice president of the company and had decision-making authority on corporate matters. The supervisor, then, was not a mere supervisor, but a proxy for the company, or its alter ego. The jury ruled that Townsend was sexually harassed and that defendant was not entitled to the Faragher affirmative defense because the harasser was a proxy for the company. As the parties fought like cats and dogs at trial over whether the company undertook effective remedial measures after Townsend complained about the harassment, the proxy verdict was significant.

Whether proxy liability exists under Title VII was an issue of first impression in the Second Circuit, but a few other Circuits had already recognized this theory of employer liability, based on a reading of the Supreme Court's decision in Faragher. Proxy liability is now the law in the Second Circuit.

Who is a proxy? The Second Circuit (Livingston, Lohier and Koeltl [D.J.]) takes its cue from the other Circuits: "Courts of Appeals have considered supervisors to be of sufficiently high rank to qualify as an employer’s proxy or alter ego when the supervisor is a 'president, owner, proprietor, partner, corporate officer,' or otherwise highly-positioned in the management hierarchy." Under this test, Townsend's harasser was an alter ego of the company:

Here, Hugh Benjamin is the only corporate Vice President of BEI, operating as second-in-command, with a position immediately below Michelle Benjamin in the corporate hierarchy. He is also a corporate shareholder with a financial stake in BEI. All of BEI’s corporate shares are held by Hugh Benjamin, Michelle Benjamin, and their two children. Given these facts, the jury reasonably could have concluded that Hugh Benjamin was sufficiently high within the corporate hierarchy to qualify as BEI’s alter ego. ... Moreover, Hugh Benjamin exercised a significant degree of control over corporate affairs, which is consistent with alter ego liability. He collaborated with Michelle Benjamin on corporate decisions including hiring, and the supervisors and managers in the field reported directly to him.

A few other interesting issues arise in this case. The scope of Title VII's "participation clause" -- another issue of first impression in the Second Circuit -- takes up half the opinion, and that's a blog post for another day. The Court of Appeals also finds that while the jury instruction was defective in failing to properly apprise the jury of the correct standard for proxy liability, that was harmless error since the harasser was a proxy as a matter of law, and no reasonable jury could find otherwise. The Second Circuit also finds that the corporate president (and the harasser's husband) was automatically liable under state law even though she did not harass Townsend. Here is how the trial court correctly charged the jury under state law:

If you determine that Hugh Benjamin was employed in a position sufficiently elevated within the corporate hierarchy as to be viewed as the employer’s alter ego, then you must also find Defendant Benjamin Enterprises strictly liable for hostile work environment sexual harassment under both federal and state law, and Defendant Michelle Benjamin strictly liable for hostile work environment sexual harassment under New York State law.