Client Alerts

The California Supreme Court recently came down with a decision setting a ceiling on punitive damages based on the amount awarded in compensatory damages.  In a 5-2 decision, the Court held that in cases where the defendant’s conduct isn’t particularly reprehensible, a 1-1 ratio between punitive and compensatory damages is the federal constitutional limit.

 

The case, Roby v. McKesson, involved a wrongful termination and harassment complaint brought by an employee, Charlene Roby, against her former employer, the McKesson Corporation.  McKesson had adopted a strict attendance policy, requiring 24 hour advanced notice of any absence.  Ms. Roby suffered from random panic attacks, causing her to miss work without giving advanced notice.  She was also harassed by a manager because of the side effects of her disability.  Eventually, she was fired under the attendance policy.

 

Ms. Roby was initially awarded $15 million in punitive damages, about five times more than the compensatory damages given.  The Supreme Court decided to decrease the punitive damages to an amount equal to the compensatory damages.  The decision came down to how reprehensibly McKesson acted.  McKesson’s conduct was limited to a decision to adopt a new attendance policy, and described by the Court as a 'one-time failure on the part of employer McKesson to take responsive action when these events came to its attention.'  The Court felt that McKesson didn't deserve more 'punishment' than an amount equal to compensatory damages.

 

The opinion is a significant one for employers.  Often, an administrative change in policy or other business measures may seem innocent when they are implemented.  But, it’s important for an employer to pay attention to any unforeseen repercussions, and be ready to resolve them when they arise.  The Court made it clear that, had there been any repeated wrongdoing by the employer, McKesson would have been on the hook for additional damages.  Employee complaints, such as harassment and complications arising out of a disability, should be taken seriously and addressed thoroughly the first time.  Ignoring a real issue may have expensive consequences.