Employers Have a New Client Harassment Defense Post-Loper Bright

Workers will have a tougher time holding their employers accountable for client, customer, and vendor harassment if more federal appeals courts adopt the Sixth Circuit’s new standard that gives businesses a leg up.

The Cincinnati-based circuit recently split from six other courts, holding that employers must intend for third-party harassment to occur in order to be liable under Title VII of the 1964 Civil Rights Act. The panel relied on the US Supreme Court’s landmark decision in Loper Bright Enterprises v. Raimondo to disregard an EEOCregulation that focused on employer negligence instead of intent.

The ruling is yet another “manifestation” that longstanding federal interpretations of unclear laws will face increased legal headwinds after Loper Bright, said Jules A. Levenson, a senior attorney at Seyfarth Shaw LLP.

Although the US Court of Appeals for the Sixth Circuit sets precedent only in Kentucky, Michigan, Ohio, and Tennessee, its decision opens a path for other circuits to revisit their tests for non-worker harassment.

The First, Second, Eighth, Ninth, Tenth, and Eleventh circuits have all adopted a negligence-based standard for those claims, with some expressly following the Equal Employment Opportunity Commission on the issue. The agency in rulemaking took the position that employers must know or should have known about the third-party harassment and failed to promptly correct it.

The Sixth Circuit’s ruling presents “an interesting twist because it potentially forms the basis for calling into question the amount of deference that should be given to the EEOC’s guidance in this area,” and casts doubt on prior appellate court decisions, said Joseph Seiner, a law professor at the University of South Carolina.

It provides a “springboard for defense lawyers to revisit this issue in those courts,” said Seiner, a former EEOC appellate attorney.

Client vs. Co-worker

The case involved a Black sales representative for Zep Inc., who the cleaning products manufacturer terminated during a company-wide reduction in force.

Before her discharge, the worker reported to her supervisor that a Zep client locked her in his office and indicated that they could date. The supervisor then reassigned the client to another sales team, according to the court.

The worker ultimately sued over alleged third-party harassment and other claims under Title VII and Michigan law.

The Sixth Circuit panel found no evidence that Zep intended for the client to harass the worker. Zep had no control over the client, meaning the client wasn’t acting as an agent of the company, it said.

The court also based its decision partly on the Supreme Court’s 2020 Bostock v. Clayton County ruling, which clarified that discrimination “because of sex” under Title VII involves conduct where an employer intentionally treats a worker differently based on their sex. This also means that sexual harassment requires a showing of intentional bias, the panel said.

“Having interpreted Title VII ourselves, we conclude, unlike the EEOC, that it imposes liability for non-employee harassment only where the employer intends for the harassment to occur,” the Sixth Circuit said.

The negligence standard adopted by the EEOC and other appeals courts, it reasoned, applies only when the alleged harasser is a co-worker.

An EEOC spokesperson didn’t immediately respond to a Bloomberg Law inquiry about whether the agency will consider revising its third-party harassment rule.

Making a distinction between client and co-worker harassment “seems odd and appears to just make it easier for customer harassment to be deemed unactionable,” said Michael Z. Green, a professor at Texas A&M University School of Law and director of its workplace law program.

When a co-worker or a customer engages in harassment, neither is acting as an agent of the employer, he said.

“The co-worker who harasses is acting outside the scope of any agency relationship, as it is never within the scope of employment to harass someone,” Green said. “So the court’s attempt to distinguish co-worker from customer harassment does not follow, to me.”

By removing the negligence standard, the Sixth Circuit also “allows employers to put their heads in the sand” and argue they didn’t know the harassment was likely to occur, according to Green.

“This makes it more difficult for plaintiffs to prove what was in the head of the employer,” he said.

‘Needlessly Created’ Split

Worker and management-side attorneys said the Sixth Circuit could’ve reached the same decision in favor of Zep had it applied the negligence standard.

The panel described the alleged harassment as a one-time incident that Zep didn’t know would happen, Seyfarth Shaw’s Levenson said.

“In this particular case, I’m not sure that the distinction in standards matters,” he said.

Carolin Guentert, a co-managing partner at plaintiff’s firm Sanford Heisler Sharp McKnight LLP, agreed. The panel “needlessly created a circuit split” and set a high bar for employees to meet, she said.

Despite the ruling creating a higher threshold to establish third-party liability, attorneys said it doesn’t encourage employers to relax their harassment policies or delay taking prompt action to address improper conduct.

“Employers should be very careful here, though. This only applies to states within the Sixth Circuit,” but they might have out-of-state employees who are subject to the more plaintiff-friendly standard in other jurisdictions, said Guentert, co-chair of the firm’s sexual violence, Title IX, and victims’ rights practice group.

“This opinion acknowledges that, while making it more difficult, an employer can still be liable when a client or a vendor harasses the employee,” especially when they know about it, she said.