October 15, 2009
A federal appeals court in St. Louis has determined that evidence of other sexual harassment instances and complaints brought to an employer’s attention can be considered to show the severity and pervasiveness of a hostile work environment and of the employer having constructive notice of this workplace problem. Sandoval v. American Bldg. Maintenance Indus., No. 08-2271 (8th Cir. Aug. 26, 2009). The Court also clarified the circumstances in which a parent company and its wholly-owned subsidiary will be considered an “integrated enterprise” so that the parent will be considered an employer liable to the subsidiary’s employees for the subsidiary’s conduct. The Eighth Circuit has jurisdiction over Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota.
The plaintiffs worked for a Kentucky company that provides janitorial services. This subsidiary company was wholly-owned by American Building Maintenance Industries, a company with approximately 100,000 employees. The plaintiffs sued ABM and its subsidiary under Title VII of the Civil Rights Act and the Minnesota Human Rights Act, alleging sexual harassment, hostile workplace and other employment-related violations. ABM argued that it was not the plaintiffs’ employer.
Courts test for an “integrated enterprise” to determine whether related, but distinct, entities are in fact so interrelated that for purposes of Title VII they should be treated as a single employer. The trial court concluded that there was not enough evidence to show that ABM and the janitorial services company were an integrated enterprise. It also determined the plaintiffs failed to present sufficient evidence to support their sexual harassment, hostile workplace and other employment-related claims. Accordingly, the court granted summary judgment to ABM and its subsidiary on all claims. The plaintiffs appealed.
The plaintiffs argued that the lower court erred in concluding ABM was not their employer. The Eighth Circuit court agreed, explaining that a parent company may be found to employ its subsidiary’s employees if:
a. the parent company so dominates the subsidiary’s operations that the two are one entity and therefore one employer, or
b. the parent company is linked to the alleged discriminatory action because it controls individual employment decisions.
The Court reaffirmed the circuit’s four-factor test for assessing the degree of control exercised by a parent company over a subsidiary:
- interrelation of operations,
- common management,
- centralized control of labor relations, and
- common ownership or financial control.
Using this test, the Court found there was substantial evidence that ABM dominated its subsidiary. Significantly, they had common officers (Chief Executive Officer and Chief Financial Officer, among others), ABM owned all of the subsidiary’s stock, and the subsidiary’s labor relations were under ABM’s centralized control.
As to the sufficiency of evidence supporting their claims, the plaintiffs argued that the trial court erred in refusing to consider other similar sexual harassment complaints made while the plaintiffs were employed. The Court agreed with the plaintiffs, ruling that evidence of other harassment complaints should have been allowed to prove the employer had constructive notice of harassment.
The Court explained that a sexual harassment plaintiff must show the harassment was so severe or pervasive as to create an objectively hostile or abusive work environment and he or she subjectively believed the working conditions have been altered. Additionally, in the Eighth Circuit, a plaintiff seeking to hold his or her employer liable for non-supervisory, co-worker harassment must show the employer knew or should have known of the harassment and failed to take prompt remedial action.
The Court said the lower court erroneously concluded that in sexual harassment/hostile workplace cases it was barred by Eighth Circuit precedent from considering other instances of harassment of which the plaintiff was unaware. According to the Court, irrespective of whether a plaintiff was aware of other incidents, such evidence is “highly probative of the type of workplace environment [the plaintiff] is subjected to, and whether a reasonable employer should have discovered the sexual harassment.” Thus, such evidence should be considered.
Accordingly, the Court remanded the case to the lower court to determine whether evidence of other sexual harassment complaints was sufficient to put the employer on constructive notice of a hostile workplace.
Sandoval raises a new and troubling development for employers, particular those with numerous locations. Judge Raymond Gruender, in dissent, found problematic the determination that other complaints, unconnected to the plaintiffs, could have put the employer on notice. He said, “[T]he Court ignores [that evidence of other incidents included] numerous sexual harassment complaints concerning different victims and different employees at different locations. [The employer] has approximately 400 locations at which it provides janitorial services in Minnesota…. [The Court] cited no authority for the proposition that an employer may have constructive notice of harassment by employees at one location based on harassment of other victims by different employees at a different location.”
Employers should review and, if necessary, revise their workplace policies and procedures to ensure harassment complaints are investigated promptly and thoroughly and any appropriate actions are timely taken. Jackson Lewis attorneys are available to answer questions about Sandoval and other workplace laws.
© 2007 Jackson Lewis LLP. Reprinted with permission. Originally published at www.jacksonlewis.com. Jackson Lewis LLP is a national workplace law firm with offices nationwide.