The U.S. Equal Employment Opportunity Commission
EEOC NOTICE Number 915.002 Date 12-14-95 1. SUBJECT. Enforcement Guidance on after-acquired evidence and McKennon v. Nashville Banner Publishing Co., 115 S.Ct. 879, 65 EPD Par. 43,368 (1995). 2. PURPOSE. This enforcement guidance analyzes the impact of the McKennon decision on EEOC charge processing (including federal employee complaints). The Court held in McKennon that a respondent is liable for its discriminatory actions even where it subsequently discovers evidence that would have led to the adverse action on lawful and legitimate grounds. 3. EFFECTIVE DATE. Upon issuance. 4. EXPIRATION DATE. As an exception to EEOC Order 205.001, Appendix B, Attachment 4, § a(5), this Notice will remain in effect until rescinded or superseded. 5. ORIGINATOR. ADEA/Title VII Divisions, Office of Legal Counsel. 6. INSTRUCTIONS. File after Section 604 of Volume II of the Compliance Manual, Theories of Discrimination. 7. SUBJECT MATTER. I. Introduction The Supreme Court has held that an employee discharged in violation of the Age Discrimination in Employment Act of 1967 (ADEA), as amended, 29 U.S.C. §621 et seq., is entitled to relief even if the employer subsequently discovers evidence of wrongdoing that would have led to the employee's termination on legitimate grounds. McKennon v. Nashville Banner Publishing Co., 115 S.Ct. 879, 65 EPD Par. 43,368 (1995).1 Noting that the ADEA, Title VII, the EPA and the ADA reflect "a societal condemnation of invidious bias" and that "[t]he private litigant who seeks redress for his or her injuries vindicates both the deterrence and the compensation objectives of the [statutes]," the Court concluded that an employer must be held liable when it is found to have engaged in unlawful discrimination, despite any later discovered evidence of any employee misdeeds. 115 S.Ct. at 884. At the same time, the Court ruled that it was necessary to account for the legitimate business concerns of the employer "where an employer . . . establish[es] that the wrongdoing was of such severity that the employee in fact would have been [subject to adverse action] on those grounds alone if the employer had known of it at the time of the [adverse action]." 115 S.Ct. at 886-87. Accordingly, the "proper boundaries of remedial relief in [after-acquired evidence cases] . . . will vary from case to case, . . . [but] as a general rule . . ., neither reinstatement nor front pay is an appropriate remedy in such instances." 115 S.Ct. at 886. Acknowledging that the proper measure of backpay is more difficult, the Court asserted that "[t]he beginning point" should be to calculate backpay "from the date of the unlawful discharge to the date the new information was discovered." 115 S.Ct. 886. "[E]xtraordinary equitable circumstances that affect the legitimate interests of either party" may also be considered in formulating the appropriate remedy. 115 S.Ct. at 886. II. Background and Opinion McKennon had been employed by the Nashville Banner Publishing Company (Banner) for nearly 30 years when she was terminated at the age of 62. According to the Banner, she was discharged as part of a work force reduction plan that was implemented to reduce costs. McKennon filed an ADEA action that alleged that her termination was due to her age. During a deposition, McKennon testified that during her employment she had copied and removed from the Banner's headquarters several confidential financial documents out of concern for [her] job security and for her "insurance" and "protection." 115 S.Ct. at 883. Thereafter, the Banner sent McKennon a letter informing her that the removal and copying of the records was in violation of her job responsibilities and "advising her (again) that she was terminated." Id. The Banner also notified McKennon that had it known of this earlier misconduct it would have discharged her immediately. For purposes of summary judgment, the Banner conceded its discrimination against McKennon, but argued that no relief was warranted because of McKennon's misconduct. The District Court agreed and granted the Banner's motion for summary judgment, holding that the earlier misconduct was grounds for her termination and that neither backpay nor any other remedy was available to McKennon under the ADEA. See 797 F. Supp. 604 (M.D. Tenn. 1992). The Sixth Circuit affirmed the district court's ruling under the same rationale. 9 F.3d 539 (1993). The Supreme Court granted certiorari to resolve conflicting views among the Courts of Appeal. See 115 S.Ct. at 883 and cases cited therein. In a unanimous decision, the Supreme Court held that "after- acquired" evidence does not defeat an employer's liability for violating the ADEA. The Court found that even if the employee's later discovered misconduct could be considered grounds for termination, the ADEA violation that actually prompted the dismissal cannot be ignored. The employee's wrongdoing does not bar relief "'where a private suit serves important public purposes.'" 115 S.Ct. at 885 (citation omitted). The remedial provisions of the Act were designed to compensate an employee for injuries caused by the illegal discrimination and to deter employers from engaging in such discrimination. Litigants who seek redress for injuries vindicate both the deterrence and compensation objectives of the ADEA and the important congressional policy against discriminatory employment practices. Ignoring an employer's illegal conduct because of after-acquired evidence, the Court said, would not be in accord with the deterrent, remedial scheme of the ADEA. However, the Court also said that where it is clear that an employee would have been terminated upon discovery of wrongdoing, the employer's legitimate interests must be considered. The "after-acquired" evidence of the employee's wrongdoing "[is] relevant not to punish the employee, or out of concern 'for the relative moral worth of the parties,'. . . but to take due account of the lawful prerogatives of the employer in the usual course of business . . . ." 115 S.Ct at 886. (citation omitted). "In giving effect to the ADEA, we must recognize the duality between the legitimate interests of the employer and the important claims of the employee who invokes the national employment policy mandated by the Act." 115 S.Ct. at 886. The Court then considered how after-acquired evidence of wrongdoing bears upon the remedy.2 It concluded that the proper boundaries of remedial relief must be addressed on a case-by-case basis. If an employer seeks to rely upon after-acquired evidence of an employee's wrongdoing, it "must first establish that the wrongdoing was of such severity that the employee in fact would have been terminated on those grounds alone if the employer had known of it at the time of the discharge."3 115 S.Ct. at 886-87. Assuming that such showing is made, "as a general rule . . ., neither reinstatement nor front pay is an appropriate remedy [because it] would be both inequitable and pointless to order the reinstatement of someone the employer would have terminated, and will terminate, in any event and upon lawful grounds." 115 S.Ct. at 886. Noting that balancing the need to compensate victims and deter violations of the ADEA with the employer's lawful prerogatives cannot be done with precision in after-acquired evidence cases, the Court provided general guidelines in assessing the appropriate award of backpay in such cases. The Court flatly rejected an absolute bar on backpay, and held that backpay should be the "beginning point" in the formulation of a remedy and should run "from the date of the unlawful discharge to the date the new information was discovered." 115 S.Ct. at 886. The Court further recognized that in formulating an appropriate order for relief, the trial court may take "into account extraordinary equitable circumstances that affect the legitimate interests of either party." 115 S.Ct. at 886. III. Charge Processing Instructions A. Backpay Available under the ADEA, Title VII, EPA and the ADA Even where the employer proves that it would have taken the same or more harsh adverse action had it known of employee misconduct, a Charging Party will still be entitled to relief under the laws enforced by the EEOC, but that relief may be subject to some limitations. If an employer fails to prove that it would have taken a similar action on the basis of subsequently discovered misconduct, the Charging Party's relief may not be limited by the after-acquired evidence. See Ricky v. Mapco, Inc., 50 F.3d 874, 876 (10th Cir. 1995) (employer "must demonstrate . . . that the misconduct . . . alleged was serious enough to justify discharge and that [the employer] would have discharged [the employee] if it had known about the [alleged misconduct]"). To resolve the issue, the investigator should consider whether there have been incidents of like misconduct by other employees. Specifically, the investigator should analyze whether other applicants were rejected or other employees were dismissed, reprimanded, suspended or forgiven for similar behavior. If no comparable past incidents are discovered, other criteria may be used in ascertaining whether the misconduct would have prompted the employer to take the adverse action. Such inquiries may include whether: 1) the misconduct is criminal in nature, (e.g., embezzlement, fraud, assault or theft); 2) the employee's behavior compromised the integrity of the employer's business (divulgence of trade secrets, security, or confidential information); or 3) the nature of the employee's misconduct was such that the adverse action appears reasonable and justifiable.4 Where an employee's misconduct is so severe that an employer would have taken the same or harsher adverse action even absent the discrimination, backpay may generally be limited to the period from the date of the unlawful employment action to the date that the misconduct was discovered. Therefore, when processing charges or complaints where after-acquired evidence is presented by an employer, investigators should evaluate the severity of the misconduct and the employer's response to similar misconduct. Example- Charging Party (CP) is a 55 year old claims adjustor for Respondent (R), an insurance company. CP is discharged from his position after being told by R that the company wishes to project a younger image. CP files a charge with the Commission alleging that he was discharged because of his age. During the course of the investigation R learns that CP had on several occasions submitted false reimbursement claims for business trips that resulted in a loss of $2,600 to R. R seeks to have CP's charge dismissed on the basis of this newly acquired evidence. R also presents evidence that two former adjustors were terminated during the last fiscal year for padding their expense accounts in the amounts of $500 and $1200, respectively. The Commission concludes that R violated the Act. However, given that R had dismissed two other adjustors in the past year for the submission of fraudulent expense account reimbursements, CP's newly discovered past behavior would be deemed to be sufficiently severe to warrant discharging CP and limit the amount of backpay available. The Commission would seek backpay from the date of CP's discharge until the date that R learned of CP's misconduct. Example - Same facts as above except that it is revealed during the course of investigation that instead of submitting false reimbursement claims, CP forgot to reimburse $50 to the petty cash fund three years ago. One week after the oversight, a co- worker brought the matter to his attention and restitution was made by CP. In this instance CP's past behavior would not rise to a level of severity required to limit the award of backpay, unless R can demonstrate that it would have terminated other employees for similar behavior. As the examples illustrate, the primary issue is whether the employer would have taken the same adverse employment action against the Charging Party had it known of the Charging Party's misconduct. The McKennon Court recognized that its guideline for backpay calculation marked only the beginning point in the analysis, as other extraordinary equitable circumstances may also be considered in formulating the appropriate remedy. Retaliation is one example of an extraordinary equitable circumstance that may warrant additional relief. Evidence of employee wrongdoing may not cut off backpay if the evidence was unearthed during a retaliatory investigation, i.e., one initiated in response to a complaint of discrimination in an attempt to uncover derogatory information about the complaining party or discourage other charges or opposition. In such instances, relief may extend beyond the date R discovered the wrongdoing to the date that the charge or complaint is resolved. Example - CP files a charge alleging that he was discriminatorily denied a promotion. R launches an extensive background investigation of CP and learns that he falsified his application. Accordingly, R fires CP. The Commission investigation reveals that R does terminate employees who have falsified their applications. It also shows that the failure to promote was not discriminatory. R contends that CP suffered no loss until the termination, that the termination was for legitimate reasons and that R is not, therefore, liable to CP. However, the Commission finds that R did not simply discover the information in the course of investigating the charge, but purposefully sought derogatory information about CP in retaliation for his challenging the failure to promote. As in McKennon, reinstatement would be inappropriate because the employer does terminate those known to have engaged in similar misconduct. However, because the evidence of wrongdoing was not simply unearthed during an investigation of CP's complaint, but was deliberately sought to retaliate against CP and to discourage similar charges, the Court's "starting point" for backpay cannot be the ending point. Instead this is the kind of "extraordinary equitable circumstance" that warrants extending backpay to the date the complaint is resolved. 5 An employer who chooses to wage a retaliatory investigation must lose the advantage of equities that would, absent the retaliation, favor that employer, especially since retaliation is an independent violation of the federal employment discrimination laws. 6 B. Post-McKennon Title VII/ADA Remedies under the Civil Rights Act of 1991 The availability of compensatory and punitive damages in after-acquired evidence cases was not before the Court in McKennon and not discussed in the opinion. As noted above, however, the McKennon Court did indicate that the principles articulated in the decision are applicable to Title VII and the ADA as well as to the ADEA. 115 S.Ct. at 884. Thus, the question is how the McKennon rationale applies to damage awards. Key to answering that question is recognizing that McKennon essentially endorsed the Commission's longstanding position that a respondent will be held liable for its unlawfully discriminatory acts whether or not the employer subsequently discovers that the affected employee or applicant engaged in misdeeds. 1. Compensatory Damages The purpose of compensatory damages is to compensate an individual for injuries or losses sustained as a result of discrimination. Victims may suffer an injury from discrimination regardless of whether a legitimate reason for an adverse action is subsequently discovered. The McKennon Court's analysis of backpay provides a framework for apportioning compensatory damages. The proper boundaries of relief in after-acquired evidence cases will vary case by case. 115 S.Ct. at 886. "The object of compensation is to restore the employee to the position he or she would have been in absent the discrimination." 115 S.Ct. at 886. In determining appropriate remedial action, "the employee's wrongdoing becomes relevant . . . to take due account of the lawful prerogatives of the employer in the usual course of its business. Id. Accordingly, when calculating out-of-pocket losses analogous to backpay, i.e., those that the complaining party would incur regardless of whether the adverse action was taken on legal or discriminatory grounds, losses incurred after the date that the evidence of wrongdoing is discovered will typically be excluded. For example, pecuniary damages such as job search expenses and moving expenses would generally end on the date the evidence of misconduct is discovered, unless the employee's wrongdoing was uncovered during the course of a retaliatory investigation waged by R. Nothing in McKennon suggests that compensatory damages for emotional harm should be time limited. The Court limited the remedies of frontpay, reinstatement and backpay only to the extent necessary to protect the employer's legitimate interest in severing the employment relationship with an unsatisfactory employee. As noted above, the "after-acquired" evidence of the employee's wrongdoing "[is] relevant not to punish the employee, or out of concern 'for the relative moral worth of the parties,' but to take due account of the lawful prerogatives of the employer in the usual course of its business . . . ." 115 S.Ct at 886 (citation omitted). In contrast, no legitimate business prerogatives are served by exonerating a proven discriminator from paying the full cost of the emotional damage caused by the discrimination. To the extent that the complaining party's emotional harm or other losses were caused by discrimination and would not have occurred if the adverse action had occurred for legitimate reasons, the discriminating employer should fully compensate those losses.7 Example - Charging Party was subjected to egregious racial harassment, including having racially derogatory cartoons put on her desk and being called racially derogatory names. She complained to management and was discharged. CP filed a charge and her psychiatrist testified that solely as a result of this discrimination, CP suffers from traumatic stress disorder and severe depression and will not fully recover for several years.8 During the course of the investigation, the respondent discovers that CP falsified her resume and does not meet the valid minimum educational requirements for the position. These are offenses for which the employer routinely terminates employees. CP seeks compensatory damages for emotional harm and for future psychiatric and job search expenses. She also seeks punitive damages. CP may recover for the future effects of the emotional harm and future medical expenses since they were caused by discrimination. Job search expenses may be recovered if they were incurred before the misconduct was discovered. Damages for future job search expenses will normally not be allowed since CP would incur these expenses once the employer exercised its lawful prerogative to discharge CP for legitimate reasons. 2. Punitive Damages After-acquired evidence does not bar punitive damages when the employer's motivation for the adverse action is found to be discriminatory and the employer acted with malice or reckless indifference to the complaining party's rights. Punitive damages are not affected by after-acquired evidence because the employer did not know of the legitimate reason for the adverse action at the time of the action. It is the employer's motivation at the time of the discriminatory conduct that is relevant in determining the propriety of punitive damages. Moreover, punitive damages are virtually always appropriate where retaliation has been established. See Enforcement Guidance: Compensatory and Punitive Damages, dated July 14, 1992, at 17-18. 3. Liquidated Damages The McKennon rationale similarly dictates that liquidated damages are awardable under the Equal Pay Act (see Wallace v. Dunn Construction Co., 62 F.3d 374, 380 (11th Cir. 1995) (en banc), and the ADEA despite the existence of any after-acquired evidence of employee wrongdoing. C. Summary The Court in McKennon held that after-acquired evidence of employee misconduct does not bar an employer's liability for having engaged in unlawfully discriminatory conduct. Thus, where discrimination is established the respondent must provide appropriate relief. Where the employer alleges alternative grounds for the adverse action, the investigation should focus not only on the allegations of discrimination but also on whether the employee's misconduct would warrant the adverse action taken. See discussion at pp. 4-6. 1. Backpay, Frontpay, and Reinstatement * Backpay continues until date of settlement, conciliation or judgment unless the employer proves that it would have taken the same or harsher adverse action based on the after- acquired evidence. If the employer makes that showing, backpay is generally calculated from the date of the unlawful adverse action to the date that the new information is discovered. However, unusual equitable circumstances that affect the legitimate interests of either party may alter the calculation in particular cases. Launching a retaliatory investigation of a CP's background in response to a charge or complaint of discrimination is one such equitable circumstance. * As a general rule, frontpay, reinstatement, and instatement are not available where there is evidence of employee wrongdoing that would warrant the adverse action. 2. Compensatory Damages * Generally, out of pocket costs associated with job loss, that charging party would have incurred regardless of whether the adverse action is taken on legal or discriminatory grounds, are available from the date of the unlawful adverse action to the date that the new information is discovered. However, consider whether equitable circumstances exist that would affect the legitimate interests of either party and, hence, alter the calculation. As with backpay, it is appropriate to extend past pecuniary damages to the date the case is resolved (i.e., the date of settlement, judgment, etc.) where the wrongdoing was discovered in the course of an investigation waged for the purpose of finding derogatory information about CP in retaliation for complaining. * Damages for emotional harm are normally available for the harm caused by the Respondent's discriminatory actions. If the complaining party can show that the discriminatory conduct caused the emotional harm and that the resulting emotional harm continued after a legitimate reason for the adverse action is discovered, (s)he may receive compensatory damages for the emotional harm and medical treatment for such harm. 3. Punitive Damages * After-acquired evidence does not bar punitive damages when the employer took the adverse action for discriminatory reasons and acted with malice or reckless indifference to the complaining party's rights. Proof of retaliation warrants punitive damages. 4. Liquidated Damages * After-acquired evidence does not preclude an award of liquidated damages in an Equal Pay Act or ADEA case. DATE: 12/14/95 APPROVED: Gilbert F. Casellas Chairman 1. The principles applied by the McKennon Court are applicable to charges brought under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., as amended, (see Wallace v. Dunn Construction Corp., 62 F.3d 374, 378 (11th Cir. 1995)(en banc); Wehr v. Ryan's Family Steak Houses, Inc., 49 F.3d 1150, 1153 (6th Cir. 1995); Russell v. Microdyne Corp., 65 F.3d 1229, 1238 (4th Cir. 1995)), and the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101 et seq., as amended. The McKennon Court noted that the ADEA is "part of a wider statutory scheme," that includes Title VII and the ADA, which "protect[s] employees in the workplace nationwide," and that the ADEA and Title VII "share common substantive features and also a common purpose: 'the elimination of discrimination in the workplace.'" 115 S.Ct. at 884. Further, although the adverse action challenged in McKennon was termination, the analysis is applicable to any alleged unlawful adverse action, such as refusal to hire, demotion or failure to promote. 2. The Court recognized that, to limit their liability, employers may routinely "undertake extensive discovery into an employee's background or [job] performance" to find evidence of employee misconduct. 115 S.Ct. at 887. The Court concluded, however, that courts could "deter most abuses" by exercising judicial authority to award attorney's fees pursuant to § 7(b) of the ADEA, and "in appropriate cases" to invoke sanctions against an employer under Rule 11 of the Federal Rules of Civil Procedure. 115 S.Ct. at 887. 3. In Shattuck v. Kinetic Concepts, Inc., 49 F.3d 1106, 1108, 66 EPD Par. 43,496 (5th Cir. 1995), a post-McKennon case involving discriminatory discharge and after-acquired evidence of resume falsification, the Fifth Circuit stated that the "pertinent inquiry, except in refusal-to-hire cases, is whether the employee would have been fired upon the discovery of the wrongdoing, not whether he would have been hired in the first place." By the same token, in a case alleging discriminatory refusal to hire, the pertinent inquiry is whether the employer would have lawfully rejected the applicant had it been aware of the after-discovered evidence at the time of hire. See Washington v. Lake County, 969 F.2d 250, 255-56 & n.5 (7th Cir. 1992)(where after acquired evidence is offered, "the hypothetical inquiry should correspond to the time of the allegedly discriminatory employment decision"). 4. In addition to injunctive relief and backpay, the ADEA provides that liquidated damages are available in instances where the discriminatory act can be shown to have been willful. The Supreme Court has held, most recently in Hazen Paper Co. v. Biggins, 113 S.Ct. 1701, 61 EPD Par. 42,186 (1993), that a willful violation occurs under the ADEA if an employer knew its conduct was unlawful or showed reckless disregard for whether its conduct was unlawful. After-acquired evidence does not bar liquidated damages because it is the employer's motivation at the time of the discriminatory conduct that is relevant in determining whether liquidated damages are warranted. 5. The Court in McKennon noted that, in litigation, courts can circumscribe overbroad discovery requests through use of attorney's fees and Rule 11 sanctions. Those constraints, however, are largely inoperative prior to commencement of litigation. Thus, other constraints are needed to deter prelitigation overzealousness. 6. To allow retaliation to go unremedied would frustrate the deterrent goals of the antidiscrimination laws and the crucial public enforcement role played by private litigants. See McKennon, 115 S.Ct. at 884-85 (private litigants further objectives of nondiscrimination laws by "[t]he disclosure through litigation of incidents or practices which violate national policies respecting nondiscrimination in the work force. . . The efficacy of its enforcement mechanisms becomes one measure of the success of [those laws]"). 7. In Russell v. Microdyne, 65 F.3d at 1241, the court ruled that compensatory and punitive damages were available despite the after acquired evidence but assumed without discussion that the date of discovery of the misconduct would limit the amount of the damages award as well as the backpay award. For the reasons discussed in the text above, the Commission rejects the assumption that the discovery of wrongdoing limits punitive damages or the award for emotional harm. 8. If CP's emotional suffering were not entirely attributable to R's discrimination, the amount of compensatory damages would be affected. See Enforcement Guidance: Compensatory and Punitive Damages, dated July 14, 1992.
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