Second Circuit Rules on Issues of First Impression Regarding Title VII Protected Activities and the Application of Affirmative Defenses

In its May 9, 2011 decision in Townsend v. Benjamin Enterprises, Inc. the Second Circuit ruled upon two issues of first impression concerning Title VII sexual harassment and retaliation claims. First, it joined the Seventh, Ninth, and Eleventh Circuits in holding that an employee’s participation in an internal employer investigation is not a protected activity under Title VII. Second, it confirmed that the Faragher/Ellerth affirmative defense generally available to employers in sexual harassment cases does not apply when the harassment is committed by a senior executive who is a proxy or alter ego for the employer.

The decision noted the following facts. In 2005, Martha Townsend, an employee of Benjamin Enterprises, Inc., reported to the company’s human resource director, Karlean Grey-Allen, that she had been sexually harassed by Hugh Benjamin, the company Vice President and husband of the company’s President, Michelle Benjamin. Grey-Allen began an investigation of the charges and, after interviewing Mr. Benjamin, asked him to work from home away from Townsend. Grey-Allen then discussed the sexual harassment allegations with a management consultant retained by the employer. The management consultant has previously trained Grey-Allen and she saw him as a mentor to whom she could share confidential concerns. When Mrs. Benjamin discovered Grey-Allen had shared the sexual harassment allegations with the consultant, she terminated Grey-Allen. Thereafter, Mr. Benjamin returned to work and Townsend’s sexual harassment claims were further investigated by the company and determined to be unfounded.

Together Townsend and Grey-Allen filed a suit against Benjamin Enterprises, Inc. alleging sexual harassment of Townsend and retaliation against Grey-Allen. The trial court granted summary judgment to the employer on Grey-Allen’s retaliation claim, but allowed Townsend’s claims to proceed to trial. In regard to Townsend’s claims, the trial court rejected the employer’s argument there is no “proxy” or “alter ego” exception to the Faragher/Ellerth affirmative defense. At trial, a jury found in favor of Townsend and awarded her damages and attorney’s fees.

The Second Circuit affirmed the trial court’s grant of summary judgment against Grey-Allen. Section 704(a) of Title VII makes it unlawful for an employer to retaliate against an individual because he has opposed any practice made unlawful by the Act or because he has participated in an investigation or other proceeding under the Act. Grey-Allen conceded that she was not protected by the opposition clause because she did not know whether Townsend’s allegations of harassment were true and thus, she lacked a good-faith belief that the discriminatory action had occurred.

In reviewing the participation component, the court found that participation by a human resources director in an internal employer investigation that is not connected with a formal EEOC proceeding does not qualify as a protected activity under Title VII. The Court rejected Grey-Allen’s argument that internal investigations fall within Section 704’s protections because Faragher/Ellerth allows employers to use their internal investigations as part of an affirmative defense. The Court concluded that while the Faragher/Ellerth affirmative defense creates an incentive for employers to conduct internal investigations, it does not impose obligations on employees to participate in such investigations as a necessary prerequisite from bringing a claim, and thus, does not provide a basis for associating internal investigations with the necessary proceedings.

As to the Employer’s arguments on appeal, the Court concluded that a Faragher/Ellerth affirmative defense is not viable when the alleged harasser holds a sufficiently high position within the hierarchy of an organization. The Court reasoned that the Faragher/Ellerth affirmative defense builds upon, rather than repudiates, the theory of proxy/alter ego liability and noted that every Court of Appeals to consider the same issue found that such a defense was not available when the supervisor was an alter-ego or proxy for the employer. As such, the Second Circuit upheld the jury’s verdict in favor of Townsend.