In an important decision that eventually may affect employers under the laws in other states and under federal law, the California Supreme Court ruled that plaintiffs in a sexual harassment case may have their damages reduced if they fail to report the harassment to their employer, even where the employer is strictly liable for the harassment because it was committed by a supervisor. State Dept. of Health Servs. v. Superior Court of Sacramento County, Cal. No. S103487 (Nov. 24, 2003).

The facts according to the court’s opinion are as follows. Theresa McGinnis began working for the Department of Health Services (“DHS”) in 1992. In August 1995, she was transferred to the Maternal and Child Health Branch, where she worked under the supervision of Cary Hall. She alleged that Hall sexually harassed her from early 1996 until late in 1997. Hall’s behavior toward McGinnis allegedly included both inappropriate comments and unwelcome physical touching. For example, McGinnis described an incident in July 1997 when Hall, after calling her into his office, said he would overlook her attendance problems if she would let him touch her vagina and then proceeded to grab her crotch.

In 1996, McGinnis told a coworker about Hall’s behavior, but she did not formally report it to management until November 1997, when she reported Hall’s harassing conduct to one of Hall’s supervisors. The supervisor conveyed these allegations to DHS’s Office of Civil Rights, which investigated the allegations and later determined that Hall had violated DHS’s sexual harassment policy. DHS began disciplinary action against Hall, prompting Hall to retire.

McGinnis brought an action against Hall and DHS alleging, among other things, sexual harassment and sex discrimination in violation of the California Fair Employment and Housing Act (“FEHA”). DHS asserted an affirmative defense that it “had exercised reasonable care by promulgating, instituting and disseminating throughout its workplace policies and procedures, offering training courses, and other methods designed to preclude and prevent any sexually harassing behavior and to correct against its reoccurrence if it did occur” and that McGinnis, “despite her knowledge of these policies and procedures, and participation in training courses, unreasonably failed to take advantage of them, and she unreasonably failed to otherwise avoid the alleged harm and damages for which she seeks relief . . . .”

DHS claimed that McGinnis’ failure to promptly use the policies and procedures it had put in place to eliminate sexual harassment in the workplace provided it with a complete defense to the sexual harassment claims. In support of this argument, DHS relied on the United States Supreme Court’s decisions in Burlington Industries, Inc. v. Ellerth (1998) 524 U.S. 742, 765 (“Ellerth”) and Faragher v. City of Boca Raton (1998) 524 U.S. 775, 807 (“Faragher”). Under these decisions, in an employee’s action under Title VII of the Civil Rights Act of 1964 (42 U.S.C. § 2000e et seq.) (“Title VII”) seeking damages for workplace sexual harassment not involving a “tangible employment action,” such as demotion or termination, an employer may establish a partial or complete defense by proving: “(a) that the employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior, and (b) that the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise.”

On appeal, the California Supreme Court observed that the FEHA’s provisions concerning employment discrimination by sexual harassment differ significantly from the provisions of Title VII. Indeed, unlike the FEHA, Title VII does not specifically address sexual harassment at all. Nonetheless, the California High Court found that an independent analysis of the FEHA’s antiharassment provisions using state law principles leads to conclusions similar to those of the United States Supreme Court.

The FEHA imposes two standards of employer liability for sexual harassment, depending on whether the person engaging in the harassment is the victim’s supervisor or a nonsupervisory co-employee. The employer is liable for harassment by a nonsupervisory employee only if the employer (a) knew or should have known of the harassing conduct and (b) failed to take immediate and appropriate corrective action. This is a negligence standard. Because the FEHA imposes this negligence standard only for harassment “by an employee other than an agent or supervisor,” by implication the FEHA makes the employer strictly liable for harassment by a supervisor.

According to the Court, the applicable language of the FEHA does not suggest that an employer’s liability for sexual harassment by a supervisor is constrained by principles of agency law. “The Legislature has indicated that all acts of harassment by a supervisor are to be exempted from the negligence standard, whether or not the supervisor was then acting as the employer’s agent, and that agency principles come into play only when the harasser is not a supervisor.” To the extent the United States Supreme Court derived the Ellerth/Faragher defense from agency principles, therefore, its reasoning was not considered applicable to the FEHA. The Court observed that “[t]he legislative history of the FEHA’s antiharassment provisions gives further support for our conclusion that an employer is strictly liable for all acts of sexual harassment by a supervisor. Thus, we conclude that under the FEHA, an employer is strictly liable for all acts of sexual harassment by a supervisor. But strict liability is not absolute liability in the sense that it precludes all defenses. Even under a strict liability standard, a plaintiff’s own conduct may limit the amount of damages recoverable or bar recovery entirely.”

According to the Restatement Second of Torts: “[O]ne injured by the tort of another is not entitled to recover damages for any harm that he could have avoided by the use of reasonable effort or expenditure after the commission of the tort.” Under the avoidable consequences doctrine as recognized in California, a person injured by another’s wrongful conduct will not be compensated for damages that the injured person could have avoided by reasonable effort or expenditure.

The California Supreme Court reasoned that application of the avoidable consequences doctrine to hostile environment sexual harassment suits against an employer is consistent with the two main purposes of the FEHA—compensation and deterrence. “The doctrine encourages preventive action by both the employer and the employee while affording compensation to the employee for harms that neither party could have avoided through reasonable care.”

The Court held, therefore, that in a FEHA action against an employer for hostile environment sexual harassment by a supervisor, an employer may plead and prove a defense based on the avoidable consequences doctrine. “In this particular context, the defense has three elements: (1) the employer took reasonable steps to prevent and correct workplace sexual harassment; (2) the employee unreasonably failed to use the preventive and corrective measures that the employer provided; and (3) reasonable use of the employer’s procedures would have prevented at least some of the harm that the employee suffered.”

According to the Court, “[t]his defense will allow the employer to escape liability for those damages, and only those damages, that the employee more likely than not could have prevented with reasonable effort and without undue risk, expense, or humiliation, by taking advantage of the employer’s internal complaint procedures appropriately designed to prevent and eliminate sexual harassment. Deciding when a harassed employee has first suffered compensable harm and when a reasonable employee would have reported the harassment will in many and perhaps most instances present disputed factual issues to be resolved by application of practical knowledge and experience. Employees may be reluctant to report their supervisors to higher management and an employee will often attempt informal negotiation with a supervisor, make efforts to avoid encounters with the supervisor, or resort to other informal strategies. Delay that results from an employee’s initial resort to such nonconfrontational means of dealing with supervisor harassment will have to be carefully evaluated to determine whether it was reasonable in a particular employment setting.”

Thus, a California employer continues to be strictly liable for hostile environment sexual harassment by a supervisor. While an employee’s failure to report harassment to the employer is not a defense on the merits to the employee’s action under the FEHA, it may serve to reduce the damages recoverable. But those damages will be reduced “only if, taking account of the employer’s anti-harassment policies and procedures and its past record of acting on harassment complaints, the employee acted unreasonably in not sooner reporting the harassment to the employer.”

It is unclear at this point whether other state and federal courts will adopt this doctrine. However, many courts often look to California courts for guidance. Accordingly, employers in all states should continue to adopt comprehensive and meaningful anti-harassment policies and complaint procedures and follow them closely.