Thinking | 17 July 2014

Employers beware! Sexual harassment payouts just got bigger

Overview

In an important decision which significantly raises the stakes for companies on the wrong end of a sexual harassment or discrimination complaint, a former senior manager of global software company Oracle has had her $18,000 damages award increased to $130,000 following a successful Federal Court appeal.

Acknowledging that community standards have changed, the Full Court has abandoned the long-accepted range for non-economic (or ‘general’) damages in sexual harassment and sex discrimination cases which limited such damages to $20,000 in most cases. In a massive step away from compensation awards in previous cases, the court awarded $100,000 for pain and suffering and other non-pecuniary loss and damage. In doing so, the decision paves the way for bigger damages awards to come.

A hollow victory at first instance

In February 2013, global software company Oracle was held vicariously liable for the sexual harassment of a former senior employee, Ms Richardson, by a male colleague, Mr Tucker. Richardson had sued Oracle and Tucker for sexual harassment, indirect discrimination and victimisation under the Sex Discrimination Act 1984 (Cth) in relation to Tucker’s conduct toward her and the subsequent handling of her complaint by Oracle. She claimed around $450,000 in damages.

The conduct complained of included a series of humiliating sexual comments and slurs (often in front of work colleagues and clients) and sexual advances by Tucker which turned into ‘a more or less constant barrage of sexual harassment’ toward Richardson over a number of months.

The Court found that Richardson had been sexually harassed by Tucker and that Oracle was vicariously liable for Tucker’s unlawful conduct. Richardson’s other claims, including that Oracle had breached her contract of employment by mishandling her complaint, failed.

Oracle tried to rely on the ‘reasonable steps’ defence, arguing that it should not be held vicarious liable for Tucker’s unlawful conduct because it had taken all reasonable steps to prevent the sexual harassment. The company relied on various policies and the fact that employees were required to complete online sexual harassment training every two years.

The company’s defence failed, with the Court finding that the company’s online training fell short of amounting to ‘all reasonable steps’. This was because the training package:

was a global training package and did not refer to the relevant Australian laws;
did not make clear that the inappropriate conduct described in the training was also against the law; and
did not mention that the company could be held vicariously liable for the unlawful actions of its employees.

A ‘very optimistic’ claim

The Court at first instance accepted that Richardson had suffered physical and psychological consequences as a result of the sexual harassment for which she was entitled to compensation.

However, the majority of Richardson’s $450,000 damages claim related to alleged future economic loss. During the four-week confidential investigation into Richardson’s complaint, she was obliged to remain in email and phone contact with Tucker in relation to the project they had been working on. When the investigation concluded, Tucker was issued with a final written warning but left in place in his position, while Richardson was taken off the project (at her request) and offered a role which, in her view, amounted to a demotion. She ultimately resigned to go to a new job which paid slightly less and she claimed financial compensation for the loss in salary.

The Court found that she left of her own free will and that her decision to resign was not sufficiently connected to the sexual harassment as to justify an award for economic loss.
Describing her claim for $450,000 as ‘very optimistic’, the Court awarded her general damages (taking into account her resulting psychological condition and other non-economic loss and damage) of just $18,000.

Making matters worse, Richardson, whose ultimate legal costs exceeded $250,000, was also ordered to pay a proportion of Oracle’s (no doubt considerable) legal costs as a result of the Court finding that she had rejected a number of reasonable, and more favourable, settlement offers from Oracle prior to the hearing (including an offer of $85,000).

Consequently, despite winning her substantive sexual harassment claim, Richardson was faced with a substantial bill.

Appeal upheld

Richardson appealed the decision to the Full Court of the Federal Court seeking a higher damages payout. After almost a year of deliberation (the appeal was heard in August 2013), the appeal court this week handed down its decision, upholding the appeal and increasing Richardson’s damages award to $130,000.

Compensation for sexual harassment and discrimination can only be awarded for loss and damage caused by or flowing from the unlawful conduct.

In deciding to allow the appeal and increase the damages awarded, the appeal court found that even though Richardson had not been demoted or otherwise forced or pressured to leave Oracle, her decision to resign was sufficiently caused by the sexual harassment as to justify awarding her compensation for the financial loss she suffered as a result of going to a lesser-paid job.

In reaching this conclusion, the appeal court appears to lower the bar for establishing a causal link between the unlawful conduct and the economic loss said to flow from that conduct so as to justify awarding her $30,000 in compensation for the financial loss.

‘Upping the ante’ on general damages

The most significant finding on appeal was that the award of just $18,000 in general damages was ‘manifestly inadequate’ given the physical, psychological and other non-economic loss and damage caused by the sexual harassment.

Until now, general damages awards in sexual harrassment and sex discrimination cases have usually fallen in the range of $12,000 to $20,000, with just a few exceptions (cases involving sexual assault or aggravated circumstances resulting in a prolonged incapacity for work).

The appeal court, departing from 15 years of case law, accepted that $18,000 was insufficient to compensate Richardson for her non-economic loss (which included a psychological injury and damage to her sexual relationship with her partner). Disregarding the conventional range for general damages, the appeal court held that it was appropriate when calculating general damages to have regard to Richardson’s injuries and to prevailing community standards which now place a higher value on compensation for pain and suffering and loss of enjoyment of life than before.

Drawing analogies with awards for non-pecuniary loss and damage in other areas of the law (such as negligence and misrepresentation cases) which have historically been much higher than in discrimination cases, the appeal court determined that proper compensation for Richardson’s non-economic loss and damage required an increase in the general damages award from $18,000 to $100,000.

The appeal court also set aside the original costs order and invited the parties to make further submissions as to costs – which may well mean more financial pain for Oracle in the form of having to pay more of Richardson’s considerable legal bill.

Take-aways for employers

We are increasingly seeing six and seven-figure claims for discrimination and sexual harassment by employees against corporate employers. This is no doubt partly due to the media attention given to a number of high profile claims in recent years (such as the claim by Kristy Fraser-Kirk against David Jones in 2010).

The Full Court’s decision in the Oracle case will undoubtedly see the upward trend in claim quantums continue – but employers can take steps to minimise their exposure.

With discrimination and sexual harassment complaints now posing an even greater threat to a company’s bottom line, employers should be putting themselves in the best possible position to argue that they have taken reasonable steps to prevent the unlawful conduct from occurring. To that end, now is a good time for employers to:

review and update their discrimination and sexual harassment policies and training programmes. In particular, policies and training should make reference to Australian laws, point to the fact that certain unacceptable behaviour is also against the law and that the company can be vicariously liable for that behaviour;
ensure that everyone in the workplace, regardless of seniority, receives training on the company’s policies upon joining the company and at least once every two years and that records of attendance are kept; and
review and update complaint handling procedures to ensure complaints are dealt with sensitively, confidentially, fairly and promptly.

Discrimination and harassment claims have the potential to cause major financial and reputational damage to companies and complaints should never be ignored.

Employers already facing such claims should seek legal advice regarding the costs protection that can be afforded by making genuine, reasonable settlement offers to resolve litigation.