Employee Participation in Internal Investigation Not Covered by Anti-Retaliation Provision of Title VII, According to Second Circuit

The Second Circuit, in a case of first impression, ruled that an employee is not protected against retaliation prohibited by Title VII of the Civil Rights Act of 1964 (“Title VII”) for participating in an investigation of sexual harassment conducted by an employer before a charge of discrimination has been filed with the Equal Employment Opportunity Commission (“EEOC”). Although under Title VII, employers are duty-bound to appropriately remedy discrimination and harassment in the workplace uncovered by such investigation, employers in the Second Circuit can breathe a modest sigh of relief that a negative employment action affecting an employee who claims protection under Title VII based on “participating” in an investigation following an internal complaint is not actionable.

Factual Background

In Townsend v. Benjamin Enterprises, Inc., plaintiff Martha Diane Townsend alleged that defendant Hugh Benjamin, the sole Vice President of Benjamin Enterprises, Inc. (“BEI”) and husband of defendant Michelle Benjamin, the President of BEI, sexually harassed her. Plaintiff Karlean Victoria Grey-Allen, BEI’s Human Resources Director, conducted an investigation in which she allegedly, inappropriately revealed confidential information during the investigation. Michelle Benjamin terminated Grey-Allen before she completed the investigation, which Grey-Allen claimed was retaliatory based on her participating in the internal investigation.

The District Court dismissed Grey-Allen’s retaliation claim on summary judgment. After a trial, a jury returned a verdict in favor of Townsend against all defendants. The defendants moved for judgment as a matter of law or for a new trial, which the District Court denied. The District Court found that the Farragher/Ellerth affirmative defenses to sexual harassment (established by showing the employer exercised reasonable care to prevent and promptly correct any sexually and harassing behavior, and the employee unreasonably failed to take advantage of any protective or corrective opportunities provided by the employer) are unavailable when the supervisor who committed the sexual harassment, in this case Hugh Benjamin, is sufficiently senior such as to constitute a “proxy” or “alter ego” of the employer. Absent Benjamin’s alter ego status, under Farragher/Ellerth the company could have escaped liability for harassment if it had demonstrated that it conducted an investigation of Townsend’s complaints and took appropriate remedial action.

Grey-Allen appealed the order granting summary judgment on her retaliation claim. The defendants appealed the order denying their motion for judgment as a matter of law of for a new trial. On appeal, the Second Circuit affirmed the District Court’s decision.

Anti-Retaliation Protections

In granting summary judgment, the District Court concluded that although Grey-Allen was investigating an allegation of sexual harassment, the investigation was not connected to any charge of discrimination filed with the EEOC. In interpreting the language of the “participation clause” of Title VII, the Second Circuit looked to other Courts of Appeals which consistently have held that the protections afforded to employees under Title VII from retaliation do not apply to an internal investigation by an employer that is not associated with a formal EEOC proceeding.

Alter Ego Liability

The Circuit Court concluded that Hugh Benjamin’s high managerial rank and significant control over the company’s operations sufficiently enabled a jury to reasonably conclude he was a proxy or alter ego of the company. The Court also ruled that, although the District Court’s jury instructions on the alter ego theory were an error because they lowered the threshold to find Hugh Benjamin an alter ego, the error was harmless because a reasonable juror could not find that he was not an alter ego given the facts of the case. Significantly, he reported directly to the President, exercised managerial responsibility for the company’s day-to-day operations and was a corporate shareholder. Thus the Second Circuit affirmed the District Court’s ruling that the Farragher/Ellerth defense was not available to the company.

Analysis for Employers

Before a formal charge of discrimination has been filed, an employer has a better chance of withstanding a retaliation claim based on its taking action against an employee who participates in an internal investigation. Often an employer may not receive immediate notice from a state agency or the EEOC when a complaint is filed. Therefore, an employer still may be at risk when acting based upon its findings in an investigation and negatively affects an employee who participates in the investigation. Nevertheless, the earlier it implements remedial steps, the better its chances to overcome a retaliation claim. Furthermore, the employer should appropriately document its findings and formulate well-reasoned bases for any response it implements. Finally, employers should train managers to understand potential ramifications resulting when company policy is violated by senior managers. Gibbons attorneys in the Employment & Labor Department are available to assist employers in workplace investigations and related litigation.