The "Realities" Of Third-Party Harassment Claims Under The MHRA

In Diaz v. AutoZoners, LLC, a former employee of AutoZoners, LLC, sued that company and its parent corporation AutoZone, Inc. (“Defendants”) under the Missouri Human Rights Act (“MHRA”) alleging claims of a hostile work environment and retaliation. Her claims arose from allegations of sexual harassment by two of AutoZone’s customers. After ample evidence of the alleged sexual harassment and evidence of Plaintiff repeatedly reporting the behavior to the appropriate superiors, but to no avail, the jury found in favor of Plaintiff and against both Defendants on Plaintiff’s hostile work environment claim, but found in favor of both Defendants on Plaintiff’s retaliation claim. Plaintiff was awarded $75,000 in compensatory damages and $243,826.25 in attorneys’ fees. AutoZoners, LLC was hit with $1,000,000 in punitive damages, while AutoZone, Inc. felt the sting of $1,500,000 in punitive damages. Both Defendants were also assessed other costs amounting to $10,075.05.

On appeal, the Missouri Court of Appeals, Western District, first discussed the nature of third-party harassment claims and the MHRA. Under the MHRA, only an employer, which is defined as “any person employing six or more persons within the state, and any person directly acting in the interest of an employer,” can be held liable for an unlawful employment practice that discriminates on the basis of sex. An employer can be held liable under either a theory of vicarious liability (i.e. when the harasser is a supervisor of the harassed employee) or under a theory of negligence in allowing a hostile work environment to grow (i.e. a non-supervisory employee or third-party is the harasser).

In this case, Plaintiff sued on the second theory, negligence in allowing a hostile work environment to grow, which, as the Court pointed out, turns the analysis to “evaluating the adequacy of the employer’s response” once the employer is made aware of the harassment. The Court also recognized that an employer has a duty under both Title VII and the MHRA to maintain a discrimination-free work environment and breaches this duty if the employer knows or should have known of the discrimination and fails to take remedial action. When a plaintiff brings suit based on this second theory under the MHRA, punitive damages may also be assessed if he or she provides clear and convincing proof of a wanton, willful, or outrageous mental state or reckless disregard so that an evil motive may be inferred.

The Court agreed with Defendants that AutoZone, Inc. had no liability because it was not Plaintiff’s employer for purposes of the MHRA. The Court discussed Missouri’s multi-factor test, the modified economic realities test, which is used in the context of an MHRA claim to determine whether an entity may be properly considered an employer under the MHRA. The factors of this test are as follows:

1. Who was responsible for establishing policies and training employees concerning harassment?
2. Who was responsible for receiving, investigating, and responding to harassment complaints?
3. Who had the power to discipline employees who may have failed to comply with anti-harassment policies?

The Court ultimately found that Plaintiff failed to provide sufficient evidence and apply the factors relevant to the employer analysis to show that AutoZone, Inc. could be considered an employer for purposes of the MHRA. As a result, the Court reversed the verdict and judgments against AutoZone, Inc., including the assessment of punitive damages against it.

However, the Court of Appeals did find that Plaintiff made a submissible case for sexual harassment, because she established that:

1. She was a member of a protected class;
2. She was subjected to unwelcome sexual harassment (at least two customers sexually harassed her);
3. The harassment was based on her sex;
4. This harassment affected a term, condition or privilege of employment in a manner sufficiently severe to create an abusive work environment; (i.e. the repeated harassment created an intimidating, hostile, or offensive working environment); and
5. Defendant AutoZoners, LLC (the employer) knew or should have known of the harassment and failed to take proper remedial action (Plaintiff told two supervisors multiple times about the harassment, as well as HR, but to no avail).

Before remanding the case to the trial court to determine the proper amount of attorney’s fees to be awarded, the Court also made the following determinations:

1. The trial court did not err in failing to submit vicarious liability as an element in jury instructions, because Plaintiff’s claim was under the second theory of negligence for allowing a hostile work environment to grow rather than the first theory of vicarious liability.
2. The trial court did not err in refusing to reduce the award of compensatory damages, because the award was supported by ample and sufficient evidence of both tangible and intangible (i.e. emotional harm) damages.
3. Punitive damages were appropriate against AutoZoners, LLC and did not violate Due Process, because Plaintiff met her burden of providing clear and convincing proof of a culpable mental state or reckless disregard evidencing evil motive on the part of the employer and the award was not “grossly excessive” under the BMW of N. Am., Inc. v. Gore factors. Furthermore, the punitive damages award did not exceed the statutory cap provided by Mo. Rev. Stat. 510.265.