In a recent decision, the 6th Circuit Court of Appeals declined to follow the prevailing approach among most federal circuit courts of appeal (and the Equal Employment Opportunity Commission [EEOC]) regarding employer liability for harassment by non-employees. In Bivens v. Zep Inc.,[1] the court held that an employer may be liable under Title VII for harassment committed by a customer only where the employer intended the harassment to occur — not merely where the employer was negligent in responding to it. This heightened standard creates a new hurdle for plaintiffs to establish employer liability in harassment cases where the alleged harasser is a non-employee.

Fact Summary

Dorothy Bivens, an African-American sales representative for Zep Inc., alleged that while she was on a sales call to a motel customer, she was subjected to sexual harassment by the motel’s manager.[2] According to Bivens, when she stepped into the motel manager’s office, he locked the door and asked her to date him.[3] Bivens declined and stated that she was married, and asked to leave the office and was allowed to do so by the manager.[4] Bivens reported the incident to her immediate supervisor, who promptly reassigned the customer to another sales representative so that Bivens would not have to interact with the motel’s manager again.[5] Neither Bivens nor her supervisor reported the incident to human resources.[6]

At around the same time, Zep determine that it needed to reduce costs.[7] Zep’s President Bill Moody made the decision to go with a reduction in force that was focused on small sales territories that generated less than $240,000 a year in revenue which included Bivens’ sales territory — projected to generate less than $100,000 annually.[8] In total, Zep eliminated 23 positions.[9] Biven’s supervisor informed her that she was being terminated.

Thereafter, Bivens sued, asserting sex-based hostile work environment harassment, retaliation and race discrimination claims under Title VII and the Michigan Elliott-Larsen Civil Rights Act (ELCRA), alleging that the customer’s manager subjected her to a hostile work environment and that she was terminated for reporting the actions of the customer’s manager and/or because of her race. The district court granted summary judgment to Zep on all claims, and Bivens appealed to the 6th Circuit Court of Appeals.

The Sixth Circuit’s Opinion

Title VII Hostile Work Environment Claim[10]

The Court of Appeals began its analysis by reviewing Bivens’ sex-based hostile work environment claim under Title VII, setting forth the prima facie elements that Bivens was required to prove:

To establish such a claim here, Bivens must show that (1) she was a member of a protected group who (2) faced unwelcome harassment, which (3) was based on her sex and (4) created a work environment that unreasonably interfered with her work performance, for which (5) Zep was responsible. Thornton v. Fed. Express Corp., 530 F.3d 451, 455 (6th Cir. 2008); cf. Meritor Sav. Bank, 477 U.S. at 63–69; Faragher v. City of Boca Raton, 524 U.S. 775, 786–93 (1998).[11]

The 6th Circuit stated that the fifth prima facie element was at issue, namely whether Zep was responsible for the alleged actions of its customer’s manager, and then proceeded to discuss the “paths” to employer liability.[12] The court noted that the first path to liability are actions taken by “owners, partners, proprietors, corporate officers, and some high-level managers” that can directly impose liability on the employer, since they “are treated as the organization’s proxy.”[13]  The court further noted that the second path to employer liability may be implicated by lower-level employees whose actions are not considered those of the company, “[b]ut in some circumstances, the employer nonetheless may be held ‘vicariously’ liable for actions taken by its lower-level employees.”[14]

The 6th Circuit turned to consider the question of whether an employer can ever be directly or vicariously liable for the actions of an alleged non-employee harasser, and if so, under what circumstances. The court first noted that “in passing Title VII, Congress created a federal species of intentional tort, ‘distinguish[ing]’ claims under Title VII from torts based on mere ‘negligent or reckless’ action” and that “[s]exual harassment under Title VII … ‘presupposes intentional conduct.’”[15] The court further noted “[b]ecause Title VII defines ‘employer’ to include ‘any agent’ of the company[16] … an employee counts as the employer’s ‘agent’ when he has agreed to ‘act’ on the employer’s ‘behalf’ and ‘subject to [its] control.’”[17]    Thus, under agency principles “the employer can be held liable either directly, for its own intentional actions, or vicariously, for those of its agent.”[18] The court noted that while employers are generally “liable for the torts that their employees commit within the scope of their employment … sexual harassment does not serve any business purpose, that tort falls outside the scope of employment.”[19] However, the court recognized that under agency law principles, an “employer is liable when the employee ‘was aided in accomplishing the tort by the existence of the agency relationship’ or the employer ‘was negligent or reckless’ in its own right in letting the employee commit the tort.”[20] 

The court stated that the “‘aided in the agency relation’ standard … encompasses instances where the harassing employee is a ‘supervisor’ who takes a ‘tangible employment action’ against the victim … as the supervisor can dock pay or demote a fellow employee only pursuant to authority afforded him by his employer” which results in the imposition of strict liability on the employer.[21]  The court then turned to address the “‘negligence’ standard … [which] governs all other cases of coworker [non-supervisor] harassment … [where] agency law principles dictate that a harasser’s unlawful intent may be imputed to the employer based only on the employer’s negligence in allowing the harassment.”[22] 

Turning to the issue of whether Zep could be responsible for the conduct of its customer’s manager, the court stated “[f]or their relationship to be deemed one of principal-agent, Zep (as the purported master) and the client (as the purported servant) each had to give their mutual “consent” to the notion that the client would “act” both “on [Zep’s] behalf” and “subject to [its] control”[23] but noted “[t]here was no such agreement here.” Here because Zep was merely a supplier to its customer and could not “exercise control over the [client’s] physical activities” the court found that “Ellerth’s agency-law-based negligence standard does not apply in these circumstances.”[24]

After determining that the negligence standard was not applicable, the court considered “whether Zep itself ‘intentionally treat[ed]’ Bivens ‘worse because of sex,’[25] — that is, whether the company intended for her harassment at the hands of the client to occur.”[26] The court noted that “the Supreme Court has explained, [that intent] is present when an actor ‘desires’ an unlawful consequence from his actions or is ‘substantially certain’ that it will result”[27] Therefore, the court reasoned that Bivens can only establish liability on behalf of Zep” by providing evidence that Zep either ‘desire[d] to cause’ her harassment or was ‘substantially certain’ that it would ‘result from’ its actions.”[28] 

In applying the intent standard to the facts presented by Bivens about the alleged harassment, the court found that “[n]one of this would allow a jury to conclude that Zep ‘desired’ such an interaction to occur or was ‘substantially certain’ that it would,”[29] and noted that “Zep is entirely absent from the timeline of this one-off event, even on Bivens’ telling, until after she returned from the unfortunate sales call and reported it to her supervisor.”[30] As such, the court affirmed summary judgment as to Bivens’ Title VII sex-based harassment claim.

In finding that a negligence-based liability standard was not appropriate in cases involving alleged harassment by non-employees, the court recognized that its holding “departs from the conclusion reached by most circuit courts to have addressed the issue as well as the EEOC’s reading of Title VII.”[31] With respect to the EEOC’s position, the court stated that the EEOC, is “authorized to issue only ‘procedural regulations’ setting forth the steps for pursuing a claim under Title VII, not substantive ones interpreting the statutory rights of parties” and that the agency’s interpretive guidelines — like § 1604.11(e) — have no ‘controlling’ effect on courts.”[32] The court further noted that “even if the agency had express authority to interpret Title VII’s substantive provisions, we would still be obliged, ‘as always,’ to ‘independently interpret the statute’”[33] and stated that it did not find the EEOC’s interpretation persuasive. With respect to the contrary holdings of most other circuit courts of appeal on the appropriate standard of liability, the court stated that “our other sister courts, seem to have ‘follow[ed] the EEOC’s guidelines on th[is] issue’ without undertaking an independent evaluation of the statute” [or] … “employ[ed] their own reasoning, [in what] … often seems like judicial policymaking.”[34]

Title VII Retaliation Claim

Addressing the merits of Bivens’ retaliation claim, the court found that the claim failed because she “cannot show that ‘her protected activity’ — complaining about a customer who sexually harassed her — 'was known to those who made th[e] decision’ to lay her off as part of the reduction-in-force.”[35] It was undisputed that Zep’s president and CEO Bill Moody, made the decision to eliminate Bivens’ sales territory and that he ‘didn’t even know who Ms. Bivens was until’ she sued the company — long after the workforce-reduction decision was final” and the court found that Bivens “‘failed to produce any direct or circumstantial evidence from which a reasonable jury could infer that’ Moody ‘knew or w[as] aware of’ her protected activity, dooming her retaliation claim.”[36] Therefore, the court found that summary judgment was appropriate as to Bivens’ retaliation claim. 

Title VII Race Discrimination Claim

Finally, the court turned to consider whether summary judgment was also appropriate as to Bivens’ claim of race discrimination.  The court found that Bivens had to supplement her ordinary prima facie showing of discrimination with “additional direct, circumstantial, or statistical evidence tending to indicate that [Zep] singled [her] out ... for discharge” because of her race since she had been terminated as apart of a reduction in force,  but found her that “additional evidence” was unavailing.[37] The evidence showed, among other things, that most of the terminated employees were white, that the reduction in force was driven by territory size and revenue projections, and that Bivens was not replaced after her termination.[38] The court found no evidence from which a reasonable jury could infer discriminatory intent on the basis of race. Therefore, the court found that summary judgment was appropriate as to Bivens’ race discrimination claim. 

Takeaways

The Bivens decision places the 6th Circuit at odds with most other federal circuit courts of appeal and the EEOC’s long-standing guidance on customer harassment, and illustrates how courts will independently review statutory provisions, without deference to agency interpretations, under Loper. For employers in Kentucky, Michigan, Ohio and Tennessee, the ruling significantly narrows potential liability for third-party harassment under Title VII. This ruling will be of particular benefit to employers located within the 6th Circuit, such as retailers, where employees regularly interact with customers. Regardless, employers should continue to investigate when customer or other third-party harassment is reported and take prompt and effective remedial action as appropriate under the circumstances. Employers should also continue to conduct regular workplace training to educate managers and employees on their obligations and rights under Title VII, and company policies prohibiting discrimination, harassment and retaliation.