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Second Circuit = The Avengers? Judges Create Alter Ego Liability

Posted in Discrimination & Harassment, Highlight, Litigation

Alter egos are all the rage right now with The Avengers well on its way to becoming one of the most popular movies of all time.

Hearing about a new case out of the Second Circuit, it would be easy to conclude the Court was getting into the superhero business with the establishment of a new theory of liability in harassment cases entitled the “alter-ego” or “proxy” theory.

Superheroes beware?

And while the theory could give Tony Stark (the alter ego of Iron Man and, at times, President of the fictional Stark Industries) cause for concern, it has nothing to do about superheroes.

(The case,  Townsend v. Benjamin Enterprises, was first recapped by the Wait a Second blog here and here.)  

As most employers know, the Supreme Court has created an affirmative defense to sexual harassment claims which, to simplify things, allows an employer to escape liability if certain conditions are met.  This theory (known by their cases names as the Faragher/Ellerth affirmative defense) has limits though.

I discussed one of those limits in a post a few years ago.  The Townsend case, now sets out another limit: proxy, or alter ego, liability.

In Townsend, an employee claimed she was harassed by her supervisor, who was also vice president of the company and had decision-making authority.   The court ruled that this superivor was a “proxy” for the company, or its alter ego, and therefore the employer was not entitled to use the affirmative defense. 

So what’s the test for an alter ego? Is it someone who dresses up as a superhero? Not quite.

As stated by the court, “[T]he relevant question is not whether the employer approved of the actions of the supervisor but rather whether the supervisor occupied a sufficiently high position in the management hierarchy of the company for his actions to be imputed automatically to the employer.”

What may qualify? As other courts have said, they consider “supervisors to be of sufficiently high rank to qualify as an employer’s proxy or alter ego when the supervisor is a president, owner, proprietor, partner, corporate officer or otherwise highly-positioned in the management hierarchy.”

Here, the court found the vice president (who was also the spouse of the President) to occupy a high managerial rank and exercise signfiicant control of the company operations. 

Which goes back to the original question: Why should Tony Stark be worried about this case? If Tony Stark — as head of Stark Industries — engaged in sexual harassment (and query whether his actions towards his personal secretary, Pepper Potts, would fall in that category), his company could be liable because he is the “alter ego” of the company, notwithstanding any of the affirmative defense arguments present in Farragher/Ellerth.

Let’s just hope that Dr. Bruce Banner, alter ego of The Hulk, wasn’t upset by this decision.