HR Management & Compliance

From $366 Million to $249,000: Takeaways for Employers from Appellate Ruling on Damages Caps

Among the many perils of litigation, one of the biggest concerns employers express is the risk of an astronomical jury verdict. On Feb. 1, 2024, the Fifth Circuit Court of Appeals addressed this issue when it cut an eye-popping $366 million jury verdict against FedEx to just $249,000.

The decision in Harris v. FedEx Corporate Services Inc. offers some certainty to employers faced with litigation and suggests strategies that may help mitigate potential liability. The court made its decision based on Title VII of the Civil Rights Act of 1964 (Title VII), which sets caps on compensatory and punitive damages a plaintiff can recover. The caps depend on the employer’s size: $50,000 for companies with 15 to100 employees and a maximum of $300,000 for companies with more than 500 employees.

The decision in Harris is a reminder of the power of statutory damages caps as well as the legal risk surrounding retaliation claims. Applying the reasoning from this decision, employers can take a number of practical steps to reduce risks and avoid substantial jury verdicts.

The Facts Leading to a $366 Million Verdict

Jennifer Harris, an African American district sales manager for FedEx, alleged race discrimination and retaliation under the Civil Rights Act of 1866 (Section 1981) and later Title VII against FedEx in the U.S. District Court for the Southern District of Texas.

Harris initially filed an internal race discrimination complaint against her white supervisor after she was asked to step down from her position due to performance concerns. After FedEx investigated the allegations, Harris was issued a counseling letter and was required to create a performance improvement plan (PIP). After two more investigations into similar complaints, Harris was recommended for termination due to continued poor performance and failure to meet the terms of two PIPs. Harris was fired in January 2020.

At trial, Harris argued her termination was in violation of Title VII and Section 1981 while FedEx argued Harris was fired because of poor performance. However, Harris pointed to evidence showing the short time between her complaints and the disciplinary actions and that white employees had underperformed but did not receive similar disciplinary actions. She also showed she was the only other person fired who also filed a discrimination complaint and that her supervisor told HR that Harris demonstrated an insubordinate attitude.

The jury returned a verdict finding Harris was retaliated against, but that FedEx did not engage In discrimination. Harris was awarded $366,160,000. The verdict comprised roughly $1.1 million in compensatory damages while the rest was comprised of punitive damages.

The Fifth Circuit Weighs In

FedEx appealed the verdict. A big part of the Fifth Circuit’s ruling came down to Harris’ employment agreement.

The agreement contained a limitation provision requiring legal action be filed within the time prescribed by law or six months of the incident. Harris argued this was unenforceable, but the Fifth Circuit disagreed and held the language meant her Section 1981 retaliation claim was time-barred because it was filed more than six months after the incident. The Title VII claim survived, however, because Title VII has statutory exhaustion requirements which usually take longer than six months.

This decision by the court had a drastic impact because Section 1981 claims are not subject to any statutory caps. That meant the most Harris could recover for both compensatory and punitive damages was the $300,000 permitted under Title VII damages cap. The Fifth Circuit upheld Harris’ victory on her Title VII retaliation claim but ultimately reduced her award to $249,000 in compensatory damages.

Finally, the Fifth Circuit disagreed with the jury’s award of punitive damages. Despite affirming her retaliation claim, the Fifth Circuit determined Harris failed to show her supervisor or FedEx acted with “malice.” The court found FedEx made good faith efforts to comply with Title VII by conducting a thorough investigation into Harris’s complaints and preventing Harris from being disciplined while the investigation was ongoing.

Takeaways for Employers

Does this case mean that employers can expect appeals courts to drastically reduce any future jury verdicts? Don’t count on it. Retaliation and discrimination claims can still pack a punch and juries remain as unpredictable as ever.

However, this case does serve as an important reminder that statutory damage caps are an important tool for employers. Indeed, attorneys representing employees are implementing new strategies to subvert the caps, including the filing of more claims under Section 1981 or state law causes of actions.

By taking a few practical steps, employers can reduce risks and potentially avoid astronomical jury verdicts.

  • Respond promptly to complaints: Take employee complaints seriously and investigate them promptly. Implement a robust reporting mechanism that allows employees to raise concerns without fear of retaliation. Address reported instances of offensive behavior or actions promptly and take appropriate disciplinary action, if necessary. This can help avoid litigation altogether, or at the very least support an argument against punitive damages.
  • Regularly assess and update your employment agreements: We recommend reviewing and updating employment agreements annually to maintain compliance with the law and respond to the latest litigation trends. Consider whether to include contractual limitations on the timing of filing lawsuits. For example, Section 1981 does not contain an express limitation clause and a contractual provision may be enforceable to shorten the limitations period.
  • Consider the forum: Be aware of statutory damage caps in both the federal and state context. Different jurisdictions may be more generous towards employees. For example, Washington, D.C. does not apply any caps for compensatory and punitive damages. Stay informed about relevant laws, regulations, and court decisions to keep up to date on these changes. Consider statutory damages caps when including choice of law and venue selection provisions within employment agreements.
  • Provide training on diversity, inclusion, and sensitivity: By promoting awareness and understanding, you can help prevent discriminatory conduct and foster a more harmonious work environment before issues arise.
  • Be cautious with termination explanations: Harris’s retaliation claims were partly successful because her supervisor criticized her behavior following her internal complaints and labeled her as “insubordinate.” Similar language has been found by courts to be unpersuasive in demonstrating the legitimate basis for termination. Employers should clearly describe the basis for their decision without resorting to vague or ambiguous terminology.

Tory Summey is a partner at Parker Poe where he focuses on employment counseling and litigation. Zack Anstett and Jeremy Locklear are associates at the firm where they focus on a broad range of employment-related disputes and litigation.

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