Company May Be Liable for Failing to Stop Customer Harassment of Employee

A recent 4^th Circuit decision opens up claims of employer liability for failing to prevent customer harassment of an employee.  Finding that a negligence standard applies to such claims, the 4^th Circuit held that the employer may have behaved negligently even though it took remedial measures shortly after major incidents of harassment occurred.  The 4^th Circuit found that the employer’s alleged failure to react to earlier incidents created a jury question as to whether the company was responsible for the third-party’s alleged harassment throughout the employee’s tenure.  The case is Freeman v. Dal-Tile Corp., No. 13-1481 (4^th Cir. Apr. 29, 2014).

The plaintiff, Lori Freeman, began working at Marble Point, Inc., a predecessor to the defendant company, Dal-Tile Corporation, in August 2006.  Marble Point hired her as a receptionist for its ceramic tile and natural stone products business.  Dal-Tile purchased her employer in June 2008 and incorporated Marble Point into its operations as a sale-service center organization, ultimately promoting the plaintiff into a sales position.  The owner of Marble Point then went on to purchase an interest in a nearby kitchen and bath remodeling center, VoStone, Inc., that bought tile products from Dal-Tile Corporation.

During the plaintiff’s employment, she often had to interact with an independent sales representative of VoStone, Timothy Koester.  The plaintiff, an African-American woman, alleged that Koester, a white male, often used gender epithets to describe women, described sexual encounters with women, and engaged in obnoxious office conduct, including passing gas on her office telephone.  When the plaintiff complained about these incidents to her supervisor at Marble Point, she referred to Koester as “an a—hole” and told Koester not to use inappropriate language, but did not react further.

In June 2009, after Dal-Tile Corporation purchased Marble Point, Koester telephoned the plaintiff and used a racial epithet.  In July 2009, Koester had a telephone conversation with the plaintiff in which he called her a “black b—-”.  The plaintiff then complained to Dal-Tile’s human resources department.  The human resources department thereafter prohibited Koester from speaking with the plaintiff.  Koester was required to avoid calling the plaintiff or the company’s general number, and instead call her supervisor’s cell phone for any business needs.

The plaintiff remained concerned that she would nevertheless have to interact with Koester and took a medical leave of absence in September 2009.  She thereafter filed a charge of discrimination and resigned her employment at Dal-Tile, and later brought suit in federal court.

The federal district court granted Dal-Tile’s motion for summary judgment, finding that the conduct was not sufficiently severe and pervasive to create a racially and sexually hostile work environment.  The court further held that, even if the harassment was severe and pervasive, the plaintiff had not made the requisite showing of negligence by Dal-Tile in responding to her complaints to establish liability.

The 4^th Circuit reversed, finding there to be sufficient evidence for a jury to determine whether the conduct was severe and pervasive enough to create a sexually and racially hostile work environment.  It further found that Dal-Tile could be held liable for the conduct even though Koester was a customer and not an employee of Dal-Tile.

In so holding, the 4^th Circuit potentially expanded the liability of companies for the acts of independent third parties.  While the majority opinion pointed out that neither Dal-Tile nor its predecessor responded effectively to the plaintiff’s informal complaints before June 2009, the dissent pointed out that Koester’s conduct became dramatically worse in the summer of 2009.  At that point, the plaintiff complained to human resources and remedial action was taken by the employer.  According to the dissent, that response satisfied Dal-Tile’s legal obligations because it was not directly responsible for Koester’s conduct as a third-party.

This decision demonstrates the difficulties employers face when a customer or other third-party engages in conduct that threatens or intimidates employees.  As shown by the 4^th Circuit’s decision, companies should include customers in their anti-harassment policies, and actively seek legal guidance at the first sign that a third-party poses a threat to employees’ working environment.