When is an employer liable for harassment by customers? You may be relieved.

When is an employer legally responsible for harassment of its employee by one of its customers? A recent court decision may be a relief for employers in Kentucky, Michigan, Ohio, and Tennessee.

Most courts ruling on the issue, as well as the U.S. Equal Employment Opportunity Commission, have found that the employer is liable for third-party harassment if it was negligent. But a three-judge panel of the U.S. Court of Appeals for the Sixth Circuit has ruled that employer “intent” is necessary for liability.

Bivens v. Zep, Inc.

Dorothy Bivens was on a routine sales call with a motel manager. The manager shut and locked his office door and wouldn’t stop propositioning her. Ms. Bivens rejected the propositions and asked to leave, at which point the manager unlocked the door.

Ms. Bivens promptly reported the incident to her supervisor, who immediately reassigned the account to another sales team. The incident was never reported to Human Resources.

Meanwhile, Ms. Bivens’ employer, Zep, Inc., was facing financial pressures, and initiated a reduction in force. Among others, Ms. Biven’s territory was selected for elimination because of its relatively low annual revenue.

After her termination, Ms. Bivens sued Zep, alleging hostile work environment (by the motel manager), retaliation for reporting the incident, and race discrimination (Ms. Bivens is Black). A federal judge in Michigan granted summary judgment to Zep on all claims, and Ms. Bivens appealed. The Sixth Circuit panel affirmed the lower court decision.

(The Sixth Circuit panel consisted of Judge Chad Readler, who wrote the opinion, and Judge Amul Thapar and Judge John Nalbandian. All three judges are Trump appointees.)

Redefining employer liability for third-party harassment

The most significant part of the panel decision focused on Zep's liability for the harassment by the motel manager. Traditionally, many courts and the EEOC have applied a “negligence” standard, meaning that an employer could be liable if it knew or should have known about the harassment and failed to take immediate and appropriate corrective action.

However, the panel explicitly rejected this standard and held that an employer is liable for customer harassment only if the employer intended for the harassment to occur or was substantially certain that it would result from its actions. The court reasoned that Title VII, the federal anti-discrimination law, primarily targets intentional discrimination. Because customers are not agents of the employer (meaning their intent cannot be automatically “imputed” to the employer), employer liability must stem from intentional conduct on the part of the employer.

Applying this standard, the court found no evidence that Zep intended for the harassment to occur or was substantially certain it would occur. Zep had no foreknowledge of the client's behavior, and upon learning of the incident, it responded promptly by reassigning the account. As a result, the court said, the hostile work environment claim failed.

Retaliation and discrimination claims

The panel also affirmed the dismissal of Ms. Bivens’ retaliation and race discrimination claims. Her retaliation claim failed primarily because the company's president and Chief Executive Officer, who made the decisions regarding the reduction in force, had no knowledge of Ms. Bivens’ harassment complaint. Moreover, the court found there was no evidence to support Ms. Bivens’ claim that she was singled out because of her race. The reduction in force was a legitimate business decision, and the statistical evidence related to the territory restructuring did not support a claim of racial bias.

Implications for employers

At this point, the Sixth Circuit is the only federal appellate court applying an “intent” standard to harassment of employees by customers and other third parties. However, employers operating in the Sixth Circuit states of Kentucky, Michigan, Ohio, and Tennessee should be encouraged (with a few cautions):

• Higher bar for liability. It will now be more difficult for employees to successfully bring harassment claims against employers based on the actions of customers or other third parties. The focus shifts from what an employer “knew or should have known” to what the employer “intended” or was “substantially certain” would happen.
• Emphasis on employer conduct. Employers are cautioned that if they ignore, condone, or create an environment where harassment is substantially certain to occur, they could still face liability under this “intent” standard.
• Post-incident response. Even with this more employer-friendly standard, it remains crucial for employers to respond promptly and effectively to any harassment complaints once received. Zep's pre-incident knowledge (or the lack thereof) was key in this case. But in addition, its post-incident response of reassigning the account demonstrated that it did not tolerate harassment of its employees. An effective post-incident response can refute any claim that the employer intended or was substantially certain that the harassment would occur.
• Be aware of your jurisdiction. Again, this “intent” standard is unique to the Sixth Circuit. Most other federal circuits and the EEOC continue to apply a negligence-based standard for third-party harassment. For companies operating in multiple states, the safest and most prudent strategy is to continue to do what is necessary to prevent and address all forms of harassment.

If you have any questions about this decision or need assistance reviewing your harassment policies and training programs, please contact a member of our Employment Litigation Prevention & Defense Practice Group.