Seyfarth Synopsis: The Fourth Circuit recently found that reducing a current employee’s voluntary overtime opportunities – despite the absence of a reduction in overall income – could be considered a tangible or materially adverse employment action sufficient to support a claim for retaliation and potentially foreclose an employer’s ability to rely on the Fargher/Ellerth defense to defeat hostile work environment claims based on sexual harassment. The Fourth Circuit stopped short of deciding whether every such reduction could be considered a tangible or materially adverse employment action, suggesting that was a determination to be made by the jury. But the Court’s analysis in this decision provides important reminders for employers as they address internal complaints of harassment. Tamika Ray v. International Paper Company, Case. No. 17-2241 (4th Cir. Nov. 28, 2018).

Procedural History

A current employee of International Paper Company (IPC) filed a lawsuit in the United States District Court of the District of South Carolina, asserting claims of sexual harassment and retaliation. Specifically, the plaintiff claimed that she had been subjected to a hostile work environment based on sexual comments and requests for sex by her supervisor for almost a decade, and that when she reported the behavior, she was denied the opportunity to work certain overtime hours. The District Court granted summary judgment in favor of IPC on both claims, and Plaintiff appealed the judgment on both counts.

Factual Background

Tamika Ray began working for IPC in 2002. She had the same supervisor, Johnnie McDowell, from the time of hire until 2013 when she transferred to a different department. However, she continued to report to McDowell when her new supervisor was not present.

Ray claimed that, starting in 2003, McDowell engaged in inappropriate conduct, including making overt sexual comments to Ray, asking Ray to engage in sexual activity with him and offering to pay her for sexual acts. Ray contends that McDowell continued this conduct despite her repeated requests that he stop.

Ray did not report this alleged conduct to anyone at IPC until 2013 – ten years after it allegedly began. At that time, she told her new supervisor and one other supervisor that McDowell would not leave her alone and was “ragging” her because she refused to have sex with him. IPC’s anti-harassment policy requires that a supervisor who is notified of potential harassment or discrimination report it to his manager, a human resources representative, or to IPC’s legal department. Both supervisors to whom Ray reported the alleged harassment offered to “say something” about Ray’s allegations. However, Ray, indicating she feared retaliation, asked the supervisors not to take action and consequently neither of the supervisors formally reported her complaint under that policy. Despite declining this offer to intervene, Ray allegedly continued to reach out to her new supervisor regarding McDowell’s conduct.

In early 2014, McDowell confronted Ray, asking whether she had reported him for sexual harassment. McDowell told Ray that such a report could get him in a lot of trouble and she denied making any such report.

In the Spring of 2014, McDowell told Ray that she was no longer permitted to perform “voluntary” overtime work before her shift began. Previously, Ray had often arrived four hours before her shift to work overtime and the compensation from this overtime work represented a significant portion of her income. Ray was still permitted to work post-shift mandatory overtime hours, but she alleged that other employees in the same position were still allowed to work pre-shift voluntary overtime after McDowell instructed Ray not to do so.

In late September 2014, Ray finally reported McDowell’s alleged sexual harassment to IPC’s human resources department. She reported that he repeatedly propositioned her to have sex and identified witnesses who could corroborate her allegations. IPC conducted an investigation of the complaint, including interviewing those witnesses identified by Ray. Although McDowell denied the allegations of harassment, the Fourth Circuit indicated that the investigator concluded that McDowell’s denial was not credible. Nonetheless, there was no eyewitness to corroborate Ray’s allegations and IPC did not discipline McDowell. IPC did instruct McDowell to refrain from further communication with Ray.

In her deposition Ray admitted that the sexual harassment stopped after the September 2014 investigation, but also claimed that McDowell would still stare at her at times and “sabotaged” her work. She reported these complaints to the human resources department in November 2014 and June 2015, and they were investigated. Again, McDowell was not disciplined but only instructed to stop adjusting the production line on which Ray worked in an effort to interfere with her ability to get her job done. Ray, still employed by IPC, filed her lawsuit in November 2015.

The Decision

The Fourth Circuit vacated summary judgment in favor of IPC on both counts, finding that there were material disputes of fact on those issues that were dispositive of the District Court’s decision. Although decided under different legal constructs for each claim, the Fourth Circuit’s opinion generally looked at whether a reasonable jury could decide that reduction in certain overtime hours could be considered a tangible or materially adverse employment action, and whether there was a causal nexus between the harassment and/or protected activity and McDowell’s decision to eliminate portions of Ray’s overtime hours.

In vacating summary judgment in favor of IPC on the sexual harassment claim, the Fourth Circuit found that a jury could find that McDowell’s eliminating the opportunity for certain, even if not all, overtime work and the resulting loss of income was a tangible employment action – i.e., represented a significant change in Ray’s benefits. Therefore, the employer could be held strictly liable by a jury and could not rely on the Faragher-Ellerth defense to obtain summary judgment. The Fourth Circuit also found that, because McDowell offered Ray money for sex, including on one occasion following his elimination of these overtime hours, it was “impossible to separate McDowell’s motive for eliminating Ray’s voluntary overtime work from McDowell’s inappropriate conduct,” requiring the jury to determine whether there was a nexus between the overtime reduction and the sexual harassment.

Moving to the retaliation claim, the Fourth Circuit again emphasized that a loss of voluntary overtime hours, notwithstanding an increase in Ray’s overall overtime compensation for the year, could constitute a materially adverse action because there was evidence that voluntary overtime compensation constituted a significant piece of Ray’s earnings before McDowell’s decision. And although the Fourth Circuit acknowledged that Ray could not establish a precise timeline between her internal complaints and the alleged adverse action, her testimony that she had complained multiple times was sufficient to create a material dispute of fact with respect to the prima facie case.

The Fourth Circuit’s decision remanding the case for further proceedings leaves open the ultimate question of whether the reduction in overtime hours in these circumstances will be deemed materially adverse and related to the alleged sexual harassment and/or protected activity. Nonetheless, the Court’s analysis offers employer’s insight on navigating internal complaints, investigations and employment decisions.

Employer Takeaways

Although the ultimate holding was based on alternative legal arguments, the facts underlying this unfavorable decision for employers, and the EEOC’s arguments around those facts in its amicus brief in support of plaintiff, highlight the importance of ensuring compliance with internal harassment reporting policies and the execution of internal investigation procedures. Specifically, managers, supervisors and human resources personnel should understand that reporting harassment is mandatory. A failure to properly pursue complaints, even where an employee specifically indicates that he or she would prefer it not reported, opens the door to significant liability for the employer.

Additionally, the decision highlights the importance of a thorough investigation of the circumstances surrounding a harassment complaint. The record in this case does not make clear why the elimination of voluntary overtime hours was not addressed as part of the formal internal investigation. But, it should serve as a warning for employers to take a broad and close look at a complainant’s working conditions as part of an investigation because, as this case demonstrates, the preventative measures put in place by an employer and its investigation and remediation efforts will not be a defense if the alleged harasser has negatively impacted the employee’s working conditions in a manner unknown to the employer.

And finally, employers and managers should understand that an employee doesn’t have to be terminated, demoted or suffer an overall loss in pay or benefits to sustain a claim. Thus, even seemingly small adjustment to an employee’s working conditions can be construed as “tangible” and “materially adverse,” creating the potential for broader liability for employers and thus should be made only after careful consideration and, if necessary, consultation with counsel.