Second Circuit Weighs in on Scope of Title VII Retaliation Claims and Proxy / Alter-Ego Liability

In Townsend v. Benjamin Enterprises (May 9, 2012), the Second Circuit – addressing two issues of first impression – held that (1) an internal complaint unconnected with an EEOC charge does not give rise to a retaliation claim under Title VII’s “participation” clause and (2) harassment by a company’s proxy or alter-ego deprives the company of a defense to vicarious liability.

Plaintiff Townsend, an employee of defendant company Benjamin Enterprises, alleged that she was sexually harassed by Hugh Benjamin, the husband of company president Michelle Benjamin.  Plaintiff Grey-Allen was the HR director who began to conduct an internal investigation of the allegations.  Before completing her investigation, she was fired by Michelle.  Grey-Allen alleged that she was fired in retaliation for her participation in the internal investigation.  (Plaintiff conceded that she was unable to proceed under Title VII’s “opposition” clause.)

1.  Internal Investigations and Participation-Based Retaliation Claims

The first issue of first impression was whether Title VII’s “participation” clause contained in its anti-retaliation provision “covers internal investigations not associated with a formal EEOC charge”.  The court held that it did not.  The “participation” clause makes it unlawful for an employer to retaliate against an individual “because he has opposed any practice made an unlawful employment practice by this subchapter, or because he has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under this subchapter.”  Parsing the statutory language, the Second Circuit held:

As in all statutory construction cases, we begin with the language of the statute. … Grey–Allen contends that the language “participate[ ] in any manner in an investigation, proceeding, or hearing under this subchapter … encompasses participation in any proceeding intended to remedy employment discrimination under Title VII, including internal sexual harassment investigations not connected with any formal EEOC proceeding or charge. We decline to adopt such a strained interpretation of the language of the statute.  The language of the participation clause confines those proceedings in which participation is protected to those “under this subchapter,” meaning subchapter VI of Chapter 21 of Title 42. []  Much of this subchapter is devoted to describing the enforcement powers of the EEOC and the procedures by which the EEOC carries out its investigations and hearings. []  An “investigation … under this subchapter” thus plainly refers to an investigation that “occur[s] in conjunction with or after the filing of a formal charge with the EEOC; it does not include participating in an employer’s internal, in-house investigation, conducted apart from a formal charge with the EEOC.”

The court also distinguished the present case from one involving a complaint to an Equal Employment Opportunity counselor, where that complaint was “required by the EEOC regulations as a prerequisite to bringing a claim” such that it amounted to participation in an investigation, proceeding, or hearing “under” Title VII.

2.  Absolute Liability – Proxy / Alter-Ego

The second issue of first impression was whether “an employer is liable under Title VII for sexual harassment committed by a senior executive who is a proxy or alter ego for the employer, despite the existence of a possible affirmative defense under Faragher v. City of Boca Raton, 524 U.S. 775 (1998) and Burlington Industries, Inc. v. Ellerth, 524 U.S. 742 (1998) (the so-called “Faragher/Ellerth defense”). That defense permits an employer to avoid vicarious liability for a hostile work environment created by a supervisor when (1) the employer takes no tangible action against the employee, (2) the employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior, and (3) the employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise.

The Second Circuit held that the Faragher/Ellerth defense is unavailable – and that liability for the harasser’s conduct is automatically imputed to the employer – when the harassing supervisor is the employer’s “proxy” or “alter ego”.  The relevant question is “whether the supervisor occupied a sufficiently high position in the management hierarchy of the company for his actions to be imputed automatically to the employer.”  Merely being a supervisor with the ability to hire and fire is not, standing alone, enough to qualify as the employer’s alter ego.

Here, the jury could have reasonably found that Hugh Benjamin was the company’s alter ego:

Hugh Benjamin is the only corporate Vice President of BEI, operating as second-in-command, with a position immediately below Michelle Benjamin in the corporate hierarchy. He is also a corporate shareholder with a financial stake in BEI. All of BEI’s corporate shares are held by Hugh Benjamin, Michelle Benjamin, and their two children. …

Moreover, Hugh Benjamin exercised a significant degree of control over corporate affairs, which is consistent with alter ego liability. He collaborated with Michelle Benjamin on corporate decisions including hiring, and the supervisors and managers in the field reported directly to him. While Michelle Benjamin had the power to overrule Hugh Benjamin’s decisions, this fact alone, without more evidence of pervasive control over Hugh Benjamin by other corporate officers at BEI, is not sufficient to establish as a matter of law that Hugh Benjamin was not BEI’s alter ego. … Nor does the fact that Hugh Benjamin owned only 5% of the corporate stock at the time of trial conclusively establish that he is not BEI’s alter ego.  … Hugh Benjamin owned 34% of the corporate shares until 2004, when some of the shares were transferred to the Benjamins’ children for estate planning purposes, a transfer that did not affect Hugh Benjamin’s decisionmaking authority.

Thus, because Hugh Benjamin occupied a high managerial rank within BEI and because he exercised significant control over the company’s operations, the jury reasonably could have concluded that he was BEI’s alter ego.


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