District Manager Was Employer’s Managing Agent Justifying Punitive Damages Against Employer in a Workplace Retaliation Case

In Colucci v. T-Mobile USA, Inc. (Apr. 29, 2020, D075932), the Court of Appeal, Fourth District, Division One (San Diego), held that a district manager was the employer’s managing agent whose workplace retaliation justified an award of punitive damages against the employer. However, the appellate court determined that the punitive damages award was constitutionally excessive and reduced the punitive damages award to one and one-half (1.5) times the amount awarded in compensatory damages.

In Colucci, a mobile telephone company store manager, who suffered from a medical disability, sued his employer for retaliation in violation of the Fair Employment and Housing Act. The employee managed a store in Ontario, California and supervised around 10 employees. The manager’s supervisor requested to transfer him to a location inside the Ontario Mills mall, but the employee suffered from an anxiety disorder that prevented him from performing his job in a crowded mall. His supervisor responded by claiming “this is the most ridiculous thing I’ve ever heard.” But, after the employee provided a medical note, the employer provided the medical accommodation and did not transfer him to the Ontario Mills store. Several months later, the employee learned that retail sales associates were spreading inflammatory rumors and making defamatory statements about him, creating a tense and uncomfortable work environment. The employee reported the issue to his supervisor who told him to “quit complaining” and that he had been “nothing but problems.” The employee then reported the unresolved defamation incident and the supervisor’s discrimination against him to the employer’s “integrity line.” The next day, the supervisor mailed a termination letter to the employee based on a false rumor that the employee was using the employer’s resources for his separate business venture. The case was tried by the jury, which returned a unanimous verdict in favor of the employee. The jury received evidence regarding the employee’s post-termination life, including the immense, ongoing toll of the termination on his mental and physical health, and his struggle to find comparable employment. The jury also heard expert witness testimony regarding the prognosis on the employee’s mental condition and his past and future economic losses. The jury awarded $1,020,042 in total compensatory damages. In a bifurcated punitive damages proceeding, the jury awarded $4 million in punitive damages. The trial court denied the employer’s motions for new trial and judgment notwithstanding the verdict. The employer appealed.

On appeal, the court determined that substantial evidence supported the jury’s finding that the employee’s supervisor was a managing agent whose conduct could justify an award of punitive damages against the employer. Pursuant to Civil Code section 3294, an employer is liable for punitive damages if an officer, director, or managing agent of the corporation acted with oppression, fraud, or malice. An employee is considered a managing agent when he or she exercises substantial discretionary authority over decisions that ultimately determine corporate policy. Whether an employee acts in a managerial capacity is not limited to corporate leaders who play a role in setting official corporate policies nor does it hinge on their level in the corporate hierarchy or their nonmanagerial title. The supervisor in this case was a district manager, responsible for managing nine retail stores and 100 employees. Individual store managers reported to him, and he in turn reported to a more senior manager. He had final authority to hire or fire employees within his district and he alone decided to fire the employee. The supervisor also decided whether and where to transfer employees, whether to institute disciplinary measures and whether and how to investigate employees’ reported concerns. These decisions affected company policy over significant aspects of the employer’s business. Accordingly, the supervisor had broad discretion in making decisions that ultimately determined corporate policy. Moreover, the Court of Appeal concluded that substantial evidence supported the jury’s finding that the supervisor acted with malice or oppression. The jury could reasonably infer from the evidence that the supervisor became angered by the employee’s complaints and concocted a reason for termination, all while knowing that the employee was in a weak physical and mental state.

Finally, the Court of Appeal held that a 1.5-to-one ratio between punitive and compensatory damages is the federal constitutional maximum in this case. The jury’s award of compensatory damages was substantial and the award for emotional distress likely reflected a punitive component. Additionally, as to the reprehensibility of the employer’s conduct, the employee suffered physical harm in that it negatively impacted his emotional and mental health, rather than being purely economic harm. It was objectively reasonable to assume that the employer’s retaliation against the employee would affect his emotional well-being and therefore, the employer’s conduct evinced an indifference to or a reckless disregard to the health or safety of others. The incident, however, was isolated and the employer did not engage in a calculated pattern of retaliation against its employees. In fact, the employer maintained an “integrity line” to receive employee complaints, maintained policies to prevent workplace misconduct and it trained employees on the employer’s policies. As such, the reprehensibility of the employer’s conduct was low to moderate under California law, which warranted a reduction in the amount of punitive damages awarded.

The Colucci case emphasizes the importance of maintaining continuous communication between an employer’s human resources department and its supervisors regarding personnel issues. In particular, supervisors should inform the human resources department of the actions they intend to take when addressing personnel issues. This will allow the employer to provide strategic direction to management in an effort to minimize liability relating to employment practices.

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May 7, 2020