On certification to the Superior Court, Appellate Division.
The central issue in this employment discrimination case concerns when victims of workplace discrimination may recover punitive damages. Our decision in Lehmann v. Toys 'R' Us, Inc., 132 N.J. 587 (1993), "established two distinct conditions that must be met as prerequisites to the award of punitive damages in a discrimination suit under the [the New Jersey Law Against Discrimination]." Rendine v. Pantzer, 141 N.J. 292, 313 (1995). Those two requirements are (1) "actual participation in or willful indifference to the wrongful conduct on the part of upper management" and (2) "proof that the offending conduct [is] 'especially egregious.'" Id. at 314.
In this case the jury awarded substantial punitive damages to the prevailing party. The pivotal issue is whether the instruction to the jury insured that the Lehmann prerequisites for punitive damages were met. Without objection, the trial court submitted the case to the jury without a specific instruction that jurors were required to find that there had been actual participation in, or willful indifference to, the wrongful conduct on the part of upper management. Because the issue arises as plain error under Rule 2:10-2, the question is whether the omission of the Lehmann upper-management charge was clearly capable of producing an unjust result. We find that because the offending employees were not so clearly members of upper management, the error was capable of producing an unjust result.
Another issue presented is whether a public entity may be liable for punitive damages under the New Jersey Law Against Discrimination (LAD), N.J.S.A. 10:5-1 to -49. We answer that question concerning recovery of punitive damages against a public entity in the affirmative on the basis of the reasoning of the three-member affirmance in Abbamont v. Piscataway Township Board of Education, 138 N.J. 405 (1994), appeal after remand, 314 N.J. Super. 293 (App. Div. 1998). We will only briefly discuss other issues raised in this case.
At the time plaintiff Joseph Cavuoti filed his complaint, he was fifty-one years old and had worked for New Jersey Transit Corporation (NJT) for approximately eight years. During that time he had received several promotions. Plaintiff contends that he was the victim of age discrimination in his applications for five different promotions between 1989 and 1993. The first three positions for which he applied were awarded to younger candidates. Plaintiff claims that the men chosen for the positions were not as qualified as he when comparing their training, mechanical experience, and management skills.
In late 1993, plaintiff filed a grievance with NJT's Equal Opportunity/Affirmative Action Office (EOAA) alleging that he had been denied the promotions due to his age. In addition, plaintiff filed a complaint in January 1994, with the federal Employment Equal Opportunity Commission (EEOC).
On March 10, 1994, plaintiff's superintendent Deborah Finn called him into her office for a meeting. Finn told Cavuoti that employees are not to file with the NJT EOAA alleging discrimination, and that those employees who do so will face problems. Additionally, Finn told Cavuoti that he had to obtain her approval before calling or writing to the EOAA again.
In mid-March 1994, plaintiff contacted Robert Smith, General Superintendent of the Newark Division, Finn's immediate supervisor, concerning his problems with Finn. Consequently, Smith held a meeting with plaintiff and Finn requesting that the two resolve their differences. For the next six to eight months plaintiff regularly complained to Smith about Finn's alleged harassment. In late 1994, the EEOC determined that there was insufficient evidence to support plaintiff's claim.
Finn gave plaintiff an unfavorable annual review for the 1995-96 year, just as she had for the 1994-95 year. In her review, Finn alleged that plaintiff either performed unsatisfactorily or needed improvement in several key areas. Plaintiff was terminated on August 6, 1996, by Finn, Smith, and Joseph Allen, NJT's Director of Human Resources. Plaintiff's notice of termination indicated that he had failed to supervise employees, had demonstrated poor judgment, and did not follow management's direction despite continuing advice and counseling.
Cavuoti filed a complaint in the Law Division alleging that the NJT had passed him over for promotions in favor of younger employees, in violation of the LAD. He later amended his complaint to assert a retaliatory discharge claim because his supervisors Deborah Finn and Robert Smith had objected to his assertion of such rights. The jury returned a verdict in favor of plaintiff, finding age discrimination in connection with two of the promotional positions to which plaintiff had applied. The jury also found that plaintiff was discharged from his management position of general foreman in retaliation for his age discrimination claim. On these claims the jury awarded plaintiff a total of $222,323 in compensatory damages ($177,323 in lost wages and $45,000 for emotional distress). The jury also awarded $1 million in punitive damages.
In an unpublished opinion, the Appellate Division remanded the punitive damages award for a new trial, but affirmed the jury verdict in all other respects. It found that the trial court had not instructed the jury that punitive damages can only be imposed based on a finding of actual participation or willful indifference by upper management. The panel found that a jury charge on this issue must make it "absolutely clear" that punitive damages cannot be imposed on an employer unless "upper management" had actually participated in or shown willful indifference to the discriminatory conduct. The panel concluded that if the jury charge fails to make this point, as it did here, the charge is "legally incorrect and has a clear capacity of producing an unjust result." We granted both parties' petitions for certification. 156 N.J. 410, 411 (1998).
What is the Basis for an Award of Punitive Damages Under the LAD?
The LAD provides that for any complaint filed under this act, "[a]ll remedies available in common law tort actions shall be available to prevailing plaintiffs." N.J.S.A. 10:5-13. That provision amended the LAD in response to our holding in Shaner v. Horizon Bancorp, 116 N.J. 433 (1989), in which the Court had reasoned that the LAD's provision for judicial enforcement was limited to relief akin to an administrative remedy. In the finding and declaration provision of the LAD, the Legislature catalogued the various harms suffered by victims of discrimination. See N.J.S.A. 10:5-3. The Legislature found that "[s]uch harms have, under the common law, given rise to legal remedies, including compensatory and punitive damages. The Legislature intends that such damages be available to all persons protected by this act. . . ." Ibid. (emphasis added). The Legislature indicated that the LAD "shall be liberally construed in combination with other protections available under the laws of this State[,]" consistent with the Legislature's "opposition to such practices of discrimination." Ibid.
The seminal New Jersey case discussing the assessment of damages against LAD violators is Lehmann, supra, 132 N.J. 587. In Lehmann, the Court held that an employer is strictly liable for equitable relief to remediate any discriminatory hostile environment found in the workplace. 132 N.J. at 616-17. However a claim for compensatory damages is governed by "agency principles." Id. at 619. Under these principles, "an employer whose supervisory employee is acting within the scope of his or her employment [is] liable for the supervisor's conduct in creating a hostile work environment," ibid., and "even in the more common situation in which the supervisor is acting outside the scope of his or her employment, the employer will be liable in most cases for the supervisor's behavior under the exceptions set forth in § 219(2) [of the Restatement (Second) of Agency]." Id. at 619-20. An employer is generally liable for a hostile work environment created by a supervisor because the power an employer delegates to a supervisor "to control the day-to-day working environment" facilitates the harassing conduct. Id. at 620.
[Heitzman v. Monmouth County, 321 N.J. Super. 133, 144-45 (App. Div. 1999) (footnotes and additional citation omitted).]
However, the Court in Lehmann held that an "employer should be liable for punitive damages [under the LAD] only in the event of actual participation by upper management or willful indifference." 132 N.J. at 625 (emphasis added). Lehmann was the first New Jersey case to impose the requirement that in order for an employer to be held liable for punitive damages under the LAD, there must be some involvement by a member of the employer's upper management. *fn1
Lehmann did not set forth a precise definition or criteria by which to measure whether an offender is a member of upper management for the purposes of assessing punitive damages against the defendant employer. Lehmann held, however, that "[c]oncerning punitive damages, . . . a greater threshold than mere negligence should be applied to measure employer liability." 132 N.J. at 624. "Punitive damages are to be awarded `when the wrongdoer's conduct is especially egregious.'" Id. at 624-25 (quoting Leimgruber v. Claridge Assocs., 73 N.J. 450, 454 (1977)).
More recently, in Taylor v. Metzger, the Court noted that "[a] supervisor has a unique role in shaping the work environment. Part of a supervisor's responsibilities is the duty to prevent, avoid, and rectify invidious harassment in the workplace." 152 N.J. 490, 503 (1997) (quoting Lehmann, supra, 132 N.J. at 622-23). Because the plaintiff's supervisor was the perpetrator of the racial harassment of the plaintiff, "plaintiff could not seek the redress that would otherwise be available to a victim of invidious workplace harassment, namely, resort to her own supervisor." Id. at 505. These statements in Taylor suggest that because the harasser was plaintiff's supervisor, his discriminatory treatment of her "increased [the] severity" of the conduct. Id. at 504.
In Kolstad v. American Dental Association, -- U.S. --, -- S. Ct. -- , -- L. Ed. 2d --, WL 407841 (U.S. June 22, 1999), the Supreme Court recently held that victims of workplace discrimination may recover punitive damages under Title VII of the Civil Rights Act, 42 U.S.C.A. § 1981(a)(b)(1), without showing that the employer's conduct was "egregious." However, by a separate 5-4 vote, the Court held that an employer will not be vicariously liable for a manager's discriminatory employment decisions when those decisions are contrary to the employer's good faith efforts to comply with Title VII.
That decision is based on the express terms of 42 U.S.C.A. § 1981(a)(b)(1), which allows an award of punitive damages in a case of "reckless indifference" to human rights. Prior to 1991, victims of job bias could seek relief only in the form of reinstatement. In 1991, Congress amended Title VII to provide compensation to the victims of employment discrimination for their pain, suffering, and lost future wages. It also allowed a jury to award up to $300,000 in punitive damages if the employer acted with "malice" or "reckless indifference" to the federally protected rights. Congress clearly intended that the standard apply to employers that engage in unlawful practices with callous indifference to the rights of workers.
Justice O'Connor's opinion for the Court is distinguished for its thoughtful Discussion of the tensions between common-law principles of vicarious liability for punitive damages based on the unlawful conduct of employees acting with the scope of their employment, and the underlying policies of anti-discrimination programs. To repeat her analysis:
Although jurisdictions disagree over whether and how to limit vicarious liability for punitive damages, see, e.g., 2 J. Ghiardi & J. Kircher, Punitive Damages: Law and Practice § 24.01 (1998) (discussing disagreement); 22 Am.Jur.2d, Damages § 788 (1988) (same), our interpretation of Title VII is informed by "the general common law of agency, rather than . . . the law of any particular State." . . . The Restatement of Agency places strict limits on the extent to which an agent's misconduct may be imputed to the principal for purposes of awarding punitive damages:
"Punitive damages can properly be awarded against a master or other principal because of an act by ...