Reversing a $3.5 million punitive damages award for an employee subjected to a hostile work environment, the 7th U.S. Circuit Court of Appeals held that while Chrysler’s attempts to abate the harassment were not perfect, the company did not act with reckless disregard.

More than 50 times in a three-year span, Cuban-American and Jewish plaintiff Otto May was the target of racist, xenophobic, homophobic, and anti-Semitic graffiti that appeared at the Chrysler assembly plant where he worked as a pipefitter. In addition to the graphic graffiti – some of which threatened his life – May had his bike and car tires punctured, sugar was poured in the gas tanks of two of his cars, and a dead bird wrapped in toilet paper to look like a Ku Klux Klansman was placed in a vise at his work station.

At trial on May’s claims of a hostile work environment in violation of Title VII, a jury awarded him $709,000 in compensatory damages and an additional $3.5 million in punitive damages for Chrysler’s reckless disregard of his rights. The trial court reduced the compensatory award to $300,000 and vacated the punitive award.

In an opinion published last August, the 7th Circuit reversed, reinstating the $3.5 million verdict, finding that Chrysler’s “response was shockingly thin as measured against the gravity of May’s harassment.” Although the punitive damages award exceeded the single-digit ratio between compensatory and punitive damages, the panel said Chrysler’s conduct was sufficiently reprehensible to support it.

But nine months later, after rehearing the case, the same three-judge panel reversed itself, affirming the district court’s grant of Chrysler’s motion for judgment as a matter of law on punitive damages.

“While Chrysler could have done more and undertaken different measures, its actions did not evince a reckless disregard for May’s federally protected rights,” the court said in a per curiam opinion. The company utilized several strategies to stop and prevent the harassment, such as allowing May to park in a different parking lot monitored (albeit incompletely) by cameras and holding a pair of meetings with the skilled trades in the paint department about Chrysler’s harassment policy. In addition, all supervisors met with their employees to review the harassment policy and the security team increased its presence in area walk-throughs.

The panel noted Chrysler’s investigative efforts to determine who was engaging in the harassing behavior, including analysis of time records and gate-ring records to narrow down which employees were in the building when various incidents occurred.

Importantly, Chrysler stepped up its efforts over time as the incidents did not stop, the court said. When graffiti appeared in a remote locker room that was difficult to monitor, the company moved the lockers to an open area more easily monitored. Additional diversity training was held and Chrysler retained a handwriting expert to evaluate samples of the graffiti.

“The evidence showed that while far from perfect, Chrysler’s actions did have a positive effect on the harassment: the harassment’s frequency gradually decreased from one year to the next, and eventually ceased in December 2005,” the court said. “The record supports the district judge’s determination that Chrysler’s failure to comply with Title VII by preventing the harassment against May was not malicious or reckless.”

Further supporting Chrysler’s good faith efforts, the court said: roughly 20 people were involved in the company’s attempts to halt the harassment and a written antiharassment policy was in place.

“To be sure, Chrysler could have done more to stop the harassment. But given the situation that it faced – an anonymous harasser, an assembly plant covering four million square feet, and a three-shift-a-day operation, Chrysler’s response was enough as a matter of law to avoid punitive damages liability,” the court concluded.

To read the decision in May v. Chrysler Group, click here.

Why it matters: The 7th Circuit’s about-face serves as a lesson in perspective to employers: punitive damages are only available to a successful plaintiff in a Title VII case where the employer acted with “malice or with reckless indifference to [the employee’s] federally protected rights.” Despite the dozens and dozens of incidents involved in May’s case – some of which involved death threats to the plaintiff and his family members – the panel concluded that Chrysler engaged in good faith efforts to comply with Title VII and was therefore not liable for punitive damages.