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Employers Beware: Harassment By Third Parties Can Create Exposure

A recent decision by the U.S. Court of Appeals for the Fourth Circuit, Freeman v. Dal-Tile Corp., serves as a reminder that employers can potentially be held liable not only for sexual or other harassment perpetrated by their own employees, but also for harassment carried out by third parties, such as employees of customers, vendors, or other business associates.

In Freeman, the plaintiff claimed that she was subjected to a sexually and racially hostile work environment due to the actions of an employee of one of her employer’s distributors. Reversing a grant of summary judgment for the employer, the Fourth Circuit concluded that a jury could reasonably find that the company knew or should have known about the harassment and failed to respond appropriately.

Other courts, including the First Circuit and the Massachusetts Supreme Judicial Court, have similarly recognized third-party harassment claims. Thus, employers need to be vigilant for potential instances of third-party harassment and ensure that they respond promptly and appropriately to any such issues.

Factual Background

The plaintiff, Lori Freeman, a black female, worked as a customer service representative for Dal-Tile Corporation. As part of her duties, Freeman regularly interacted with Timothy Koester, a sales representative for one of Dal-Tile’s distributors. In the course of their interactions, Koester allegedly showed Freeman pictures of naked women on his cell phone and used racial and sexual epithets, including referring to black women as “black b****s” and using the “n” word.

Freeman repeatedly discussed Koester’s conduct with her supervisor, who also witnessed some of the offensive incidents. The supervisor expressed disapproval of Koester’s actions but failed to take any concrete steps to address them.

After three years of enduring Koester’s behavior, Freeman complained to Dal-Tile’s HR department. In response, Dal-Tile initially banned Koester from its facility but later allowed him to return, on the condition that he not communicate with Freeman and coordinate his on-site meetings through Freeman’s supervisor.

After taking a two-month medical leave of absence for anxiety and depression, Freeman resigned from Dal-Tile. She later filed suit in the U.S. District Court for the Eastern District of North Carolina, alleging, in part, that Dal-Tile had violated Title VII of the Civil Rights Act of 1964 by tolerating a racially and sexually hostile work environment created by Koester’s actions.

District Court’s Decision

The district court granted Dal-Tile’s motion for summary judgment on Freeman’s harassment claims, concluding that the alleged harassment was not sufficiently severe or pervasive to violate Title VII. In addition, the district court ruled that Dal-Tile did not have actual or constructive knowledge of the harassment prior to Freeman’s notifying the company’s HR department, because “no reasonable fact-finder could conclude that the plaintiff’s statement[s] to [her supervisor] constituted a complaint.” Finally, the district court concluded that, upon being informed of the alleged harassment, Dal-Tile responded promptly and appropriately.

Fourth Circuit’s Decision

On Freeman’s appeal, the Fourth Circuit reversed and remanded the district court’s grant of summary judgment. As a threshold matter, the Fourth Circuit held, in disagreement with the district court, that Koester’s conduct was sufficiently severe and pervasive to constitute actionable harassment under Title VII.

The Fourth Circuit then proceeded to consider whether Dal-Tile could be held liable for harassment as a result of the actions of Koester, a third party. The court answered this question in the affirmative. Adopting a negligence standard, the court held that an employer is liable under Title VII for a hostile work environment created by a third party’s actions if the employer (i) knew or should have known of the harassment, and (ii) failed to take prompt remedial action reasonably calculated to end the harassment.

As to the first of these prongs, the Fourth Circuit concluded that Freeman’s supervisor had “actual knowledge” of Koester’s harassment because she had witnessed some of the incidents and was notified of others by Freeman. Further, based on Freeman’s reaction to these incidents, the court found that the supervisor clearly knew or should have known that Freeman was offended by Koester’s actions.

In addition, the Fourth Circuit held that a jury could reasonably conclude that Dal-Tile’s response to Freeman’s complaints was inadequate. The court emphasized that for three years, Freeman’s supervisor effectively did nothing in response to Freeman’s complaints or those incidents that the supervisor herself witnessed. For instance, upon hearing one of Freeman’s complaints, the supervisor “scoffed and shook her head and put her head back down and continued on with trying to pick the nail polish off of her nails.” After another incident, the supervisor “simply rolled her eyes and went on talking to a co-worker.” It was only after Freeman complained to HR that Dal-Tile finally directed Koester not to have further contact with Freeman. The court concluded that while this “may have been an adequate response had it been put into place sooner,” Dal-Tile waited far too long to take such a step and, accordingly, could be found liable for Koester’s harassment of Freeman.

Decisions By Other Courts

The Fourth Circuit’s Freeman decision is consistent with rulings by other courts that have considered whether employers may be held liable under Title VII for workplace harassment perpetrated by third parties. In particular, like the Fourth Circuit, the Seventh, Ninth, Tenth, and Eleventh Circuits have applied a negligence standard to such claims, holding that an employer is liable for a hostile environment created by a third party’s harassment if the employer knew or should have known of the harassment and failed to take prompt, effective remedial action.

On the state court level, the Massachusetts Supreme Judicial Court (“SJC”) has likewise adopted a negligence standard for third-party harassment claims under Mass. Gen. L. c. 151B. See Modern Cont’l/Obayashi v. Massachusetts Comm’n Against Discrimination, 445 Mass. 96, 105 (2005).

Further, the First Circuit, as well, has recognized claims of third-party harassment, while adopting a somewhat different legal standard. In Rodriguez-Hernandez v. Miranda-Velez, 132 F.3d 848 (1st Cir. 1998), a client of the defendant employer solicited sex from the plaintiff. When the plaintiff complained to the employer’s president, the president told her to respond to the client’s advances “as a woman.” The plaintiff was later terminated for allegedly misusing company property, and she subsequently filed a sexual-harassment lawsuit. The First Circuit affirmed a jury verdict for the plaintiff, concluding that “[e]mployers can be liable for a customer’s unwanted sexual advances, if the employer ratifies or acquiesces in the customer’s demands.”

Thus, while the U.S. Supreme Court has not yet ruled on this issue, the Freeman decision is in line with other court decisions recognizing claims of third-party harassment.

Recommendations For Employers

In light of Freeman and other cases in this area, there are a number of steps that employers are advised to take.

First, in consultation with employment counsel, employers should review and revise their anti-harassment policies as necessary to ensure that their policies expressly prohibit harassment by third parties and detail how employees can submit complaints about such issues.

Second, employers should train all supervisors and HR personnel in recognizing and responding appropriately to incidents of third-party harassment.

Third, upon becoming aware of a complaint of third-party harassment, employers should immediately and thoroughly investigate the matter, just as they would a complaint of harassment by an employee.

 Finally, if an investigation substantiates a complaint of third-party harassment, an employer should promptly take appropriate steps to end and remedy the harassment. Depending on the circumstances, this may include, for instance, banning the harasser from the employer’s workplace or otherwise ensuring that the harasser will not have further contact with the complainant. By promptly taking such remedial action, an employer can maximize its chances of protecting itself from liability in connection with a potential claim of third-party harassment.

A previous version of this article appeared in Massachusetts Lawyers Weekly (“MLW”).  The Firm is grateful to MLW for its support in publishing this article.