Why it matters: In a case reminding employers about potential liability for third-party harassment, the 4th U.S. Circuit Court of Appeals reversed summary judgment for an employer in a suit alleging a female customer service representative was subjected to a racially and sexually hostile work environment by an independent sales rep. The three-judge panel adopted a negligence standard for third-party liability similar to other federal appellate courts – citing cases from the 7th, 9th, 10th, and 11th Circuits – establishing that employers can be liable if they “knew or should have known” about harassment and fail to take prompt remedial action.

Detailed Discussion

Lori Freeman, an African-American female, worked as a customer service representative for Dal-Tile Corporation in North Carolina. Dal-Tile had an ownership interest in a local kitchen and bath remodeling center, VoStone, Inc.

An independent sales representative for VoStone named Timothy Koester typically interacted with Freeman more than once a day. The first incident cited by Freeman occurred just two weeks after she started her job in 2006 when she overheard Koester refer to a photograph by asking, “[H]ey, who are these two black b****es?”

Over the next three years, Koester repeatedly used the term “b****es” and often made comments about his sexual prowess, sharing photos on his phone of naked women. He also engaged in crude behavior such as farting into Freeman’s phone. On one occasion, he asked Freeman to cover for him because he had partied too hard the night before and said, “I’m just too f***ed up, don’t take offense, but I’m as f***ed up as a n****r’s checkbook.” When President Barack Obama was elected in 2008, he told her, “[Y]ou guys won.”

Freeman complained of the incidents to her supervisor and told Koester his comments were demeaning and made her uncomfortable. She eventually reported the comments to human resources in 2009 and Koester was initially banned from the facility. The company later lifted the ban but prohibited Koester from communicating with Freeman.

After resigning, Freeman filed a charge with the Equal Employment Opportunity Commission (EEOC) and then filed suit in federal court, claiming that Dal-Tile subjected her to discrimination based on both sex and race. A federal district court held that Freeman could not establish that liability should be imputed to Dal-Tile and granted the employer summary judgment.

A two-to-one panel of the 4th Circuit reversed on her claims of a hostile work environment. First, the court adopted a negligence standard for employer liability with regard to third-party harassment under Title VII.

“Similar to the reasoning we set forth for employer liability for co-worker harassment, ‘an employer cannot avoid Title VII liability for [third-party] harassment by adopting a “see no evil, hear no evil” strategy,’” the panel wrote. “Therefore, an employer is liable under Title VII for third parties creating a hostile work environment if the employer knew or should have known of the harassment and failed ‘to take prompt remedial action reasonably calculated to end the harassment.’”

Finding the record in Freeman’s case “replete with evidence of frequent abusive behavior by Koester during Freeman’s tenure,” the court said she had established a basis for imposing liability on Dal-Tile under the new standard.

Freeman presented evidence that her supervisor knew about all three of the most major incidents (the “black b****es” comments and the checkbook reference) and had personal knowledge of the lewd and inappropriate statements Koester made on a frequent basis.

“This evidence, if proven true, shows that Dal-Tile, through its agent [the supervisor], had actual knowledge of the harassment and that Freeman found it offensive, as shown by Freeman’s frequent complaints and her negative reaction to his behavior,” the panel wrote. “However, even if [the supervisor] did not have actual knowledge that Freeman was offended by Koester’s behavior, at the very least, she should have known it,” the court added, given the use of such incendiary terms in the presence of a black, female employee.

The panel majority also criticized the employer for not responding to the alleged harassment for three years. “[P]articularly shocking to us is the fact Dal-Tile took absolutely no action when Koester passed gas on Freeman’s phone and made [her] cry in [the presence of her supervisor], nor when Freeman promptly complained to [her supervisor] that Koester had used the word ‘n****r’ on the phone with her.”

The court reversed summary judgment in Dal-Tile’s favor on the sexual and racial hostile work environment claims under Title VII. However, the panel upheld summary judgment on other claims such as constructive discharge, finding that Freeman voluntarily resigned from her position. The decision was not unanimous, with one judge filing a dissenting opinion in which he expressed “grave concerns” that “the majority extends the scope of Title VII beyond what the Supreme Court has so far recognized.”

To read the decision in Freeman v. Dal-Tile Corp., click here.