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MASSACHUSETTS SJC UPHOLDS $500,000 PUNITIVE DAMAGE AWARD AGAINST EMPLOYER BASED SOLELY UPON FAILURE TO PROMPTLY AND PROPERLY CONDUCT SEXUAL HARASSMENT INVESTIGATION

September, 2016

In a stern warning to employers as to how not to handle a sexual harassment investigation, the Massachusetts Supreme Judicial Court recently upheld a jury’s award of $500,000 in punitive damages to a former employee of Lexus of Watertown, Inc., based solely upon the fact that her employer, simply put, botched a sexual harassment investigation. After hearing evidence that the former employee, Emma Gyulakian, had been subjected to “relentless sexual harassment by her supervisor,” a jury awarded Ms. Gyulakian $40,000 in emotional distress damages and $500,000 in punitive damages. Her employer appealed the sizeable punitive damages award, arguing that the facts did not warrant such a punishment. The SJC responded with a strong caution to employers, holding that it was reasonable for the jury to conclude that “independent of the conduct of harassment engaged in by its supervisory employee, Lexus failed to take adequate remedial measures after being put on notice of a sexually hostile or offensive work environment, and that failure was outrageous or egregious.”

Ms. Gyulakian testified that she had notified her supervisor’s supervisor of the sexual harassment over the course of the 18 months prior to her termination. The court noted that Lexus of Watertown “purportedly” conducted an investigation only after Ms. Gyulakian complained of sexual harassment at her termination meeting, and claimed not to find any corroboration of her allegations. Lexus of Watertown tried to convince the court that punitive damages should not be awarded because it was unaware of the supervisor’s sexual harassment of Ms. Gyulakian. The court responded, “In determining whether to impose punitive damages against an employer based on its supervisory employee’s creation of a sexually hostile or offensive work environment, the scope of our inquiry is independent of the direct actions of that employee, and considers whether the employer’s response, once it is on notice of the offensive behavior, was sufficient to address the complained-of harassment.” The court concluded that Lexus of Watertown was on notice of the sexually harassing conduct well before Ms. Gyulakian’s termination meeting, given the testimony of members of senior management that confirmed they witnessed or were aware of the supervisor’s conduct but failed to act. The court confirmed that Lexus of Watertown’s conduct was outrageous and egregious because members of senior management were aware of the conduct and the investigation was wholly insufficient (noting that the manager to whom she had reported the conduct stated that “he honestly did not believe her;” the investigator did not speak with members of Ms. Gyulakian’s department, who most likely would have been witnesses; Ms. Gyulakian was never interviewed; and the investigation was carried out by the manager who admitted to not believing Ms. Gyulakian’s allegations).

All employers should take seriously any notice of an unlawful harassment situation (whether through a formal complaint or otherwise), and act quickly to conduct a proper investigation and, if necessary, take remedial action. Managers and supervisors should understand that any such issues must be reported to Human Resources and/or the appropriate member of senior management.

Please contact us if you have any question regarding these issues or any other employment law issue.