Appeals Court Finds Employer Liable for
Supervisor's Same-Sex Sexual Harassment
by Ryan N. Parsons
A recent case reminds us to take all claims of sexual
harassment seriously, including when the two employees are of the same sex.
In Cherry v. Shaw Coastal [an enhanced version of this opinion is available to lexis.com subscribers],
the Fifth Circuit Court of Appeals recently found an employer liable for
failing to respond following allegations that a male supervisor was sexually
harassing a male employee.
The supervisor sent the employee sexually explicit text
messages, touched him repeatedly ("in the way I touch my wife,"
according to one witness), touched his buttocks, and repeatedly made sexual
comments to him and about him. The employee and a different supervisor
repeatedly complained up the ladder, but management was dismissive. At
first, management viewed the conduct as merely "horsing around" and
failed to refer the claims to human resources, in spite of a company policy
requiring them to do so. When HR finally did get involved, they concluded that
the allegations were all "he-said-he-said," despite other witnesses
who could have corroborated the employee's claims.
The employee eventually resigned because of the
harassment and filed suit against the supervisor and the company for
sexual harassment. A jury found for the employee on all the claims and awarded
him $500,000. The trial court initially overturned the verdict, but the Fifth
Circuit reversed the trial court and reinstated the jury's verdict and the
damages award. The court first determined that the supervisor's actions were
sexual in nature, rather than merely humiliating, and that the actions were
severe enough to warrant the verdict. Finally, and most important for
management, the court determined that the employer's response was inadequate.
"An employer can escape liability if it takes remedial action calculated
to end co-worker harassment as soon as it knows or should know of the
harassment"; however, the employer's failure to respond to the employee's
accusations ruined its chance to take advantage of this opportunity.
If a female employee complained about a male supervisor
inappropriately touching her and sending her lewd and obscene messages, most
employers would respond promptly and thoroughly. But some employers may not be
as quick to address the same claim from a male employee. This case provides a
strong reminder that employers must foster a culture where all sexual
harassment claims are treated with the utmost seriousness. Failure to do so
could be costly.
Sarbanes-Oxley's Protection Does Not Extend to
Employees of Contractors of Public Companies
by: Jonathan W. Oliff
The Sarbanes-Oxley Act (SOX) provides "whistleblower"
protection to employees of publicly traded companies who report corporate
securities violations or fraud against investors. Usually this involves SOX's
protection of employees against retaliation for reporting their own employers'
alleged violation of securities law. In a recent case, two employees of a
private contractor attempted to bring SOX retaliation claims against their
former employers, which provided investment advising services to mutual funds
registered with the Securities and Exchange Commission. After allowing the
employees to bring the claims, the district court asked the U.S. Court of
Appeals for the First Circuit to answer the question of whether SOX's
whistleblower protection applies to an employee of a contractor of a public
company. The First Circuit found that employees of the private contractor were
not "employees" under SOX and could not bring their retaliation claims [enhanced version].
SOX's provisions prohibit an employer from retaliating
against any employee who provides information or otherwise assists in an
investigation that the employee reasonably believes constitutes a violation of
securities law. Courts have found generally that SOX provides broad protection
- to promote corporate ethics and to counteract a culture that discourages
employees from reporting fraudulent behavior by protecting whistleblowers from
retaliation. However, the First Circuit specifically looked to the language
used by SOX that prohibits retaliation, focusing on how the statute defines an
While other provisions of SOX clearly indicate they are
intended to apply to employees of private companies, the caption of SOX's
whistleblower section and its text refer specifically to employees of publicly
traded companies. The First Circuit also recognized that other federal acts
providing whistleblower protection, such as the Energy Reorganization Act and
the Pipeline Safety Improvement Act, specifically include contractors or
subcontractors in their definition of an employer. Finally, the court
acknowledged some Department of Labor decisions have indicated that an employee
of a private company may be able to bring a SOX whistleblower claim if his or
her employer acts as a contractor of a public company and retaliates against an
employee at the public company's direction. Although the court did not give any
deference to the Department of Labor's position, this remains a possibility
since the court did not decide that issue in its opinion.
companies must be aware that the scope of SOX's protection has been interpreted
broadly by courts, potentially including complaints about the illegal
activities of a number of third parties, including clients, customers, and
other business partners. Fortunately, based on the First Circuit's recent
decision, private contractors of publicly traded companies may enjoy some
relief from SOX claims brought by their own employees. If employees of a
private contractor complain about or report alleged violations of securities
law, they may not be entitled to the same protection employees of public
companies enjoy against retaliation by their employer. Until additional
Circuits weigh in on the issue, private contractors would still be well advised
to have reporting mechanisms in place for complaints about securities and
accounting issues related to their contracts with public companies, and be sure
to fully evaluate the circumstances of any complaint before taking disciplinary
action against an employee.