Drafting and continuously updating employee policies can be a tiresome and thankless chore. Securing a budget to retain legal counsel to review the policies and to present personal training sessions can be a challenge for Human Resource professionals. How do employers and HR professionals calculate the long‐term savings associated with ensuring legally compliant, customized policies and professional, interactive training?

 Recently, an employer in Racine, Wisconsin experienced, first hand, the perils of relying on “canned” employment policies and videotaped training modules. That employer’s experience signals a new and significant change in the landscape of training and personnel policies in Wisconsin.

Summary Of The IHOP Case. On January 9, 2012, in EEOC v. Management Hospitality of Racine, d/b/a International House of Pancakes (“IHOP”), the Seventh Circuit Court of Appeals upheld a jury verdict against the owner of an International House of Pancakes restaurant in Racine. The jury held the restaurant liable for maintaining a hostile work environment that resulted in sexual harassment claims by two female employees.

The compensatory damages awarded to the employees were nominal ‐ one employee was awarded $1,000 and the other was awarded $4,000. However, the jury also awarded $100,000 in punitive damages against the restaurant (the maximum amount available at law) on grounds that the restaurant “recklessly disregarded” the rights of the two employees.

At first blush, the outcome did not appear to reflect any earth‐shaking new legal doctrine, or any unique lessons for Wisconsin employers. However, the verdict disguised the enormous changes in Wisconsin law resulting from the decision, which became evident on appeal.

IHOP’s Appeal. IHOP’s appeal to the Seventh Circuit focused on two defenses which employers have traditionally relied on to avoid liability for sexual harassment claims and to avoid liability for punitive damages.

The first defense, known as the Faragher/Ellerth defense (from the names of the Supreme Court cases which created the defense), allows an employer to avoid liability, even if a jury finds that sexual harassment or a hostile work environment existed, if the employer can show: 1) that it exercised reasonable care to prevent and promptly correct any sexual harassing behavior, and 2) that the employee unreasonably failed to take advantage of protective or corrective opportunities provided by the employer. Employers typically rely on the existence of written harassment policies and harassment training programs to demonstrate that they have taken “reasonable care” to prevent harassment. The Faragher/Ellerth defense is a crucial tool for employers to reduce their exposure to discrimination and harassment claims, which is why most Wisconsin employers have adopted written harassment policies and routinely present harassment training.

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