Punitive Damages in Employment Discrimination Cases after Exxon: The Death of Punies has been Greatly Exaggerated

The blawgosphere has been buzzing about the supposed death of punitive damages in light of the Supreme Court’s decision in Exxon Shipping Co. v. Baker, in which the Court held that, as a matter of federal maritime law, the maximum amount of a defendant’s liability for punitive damages is equal to one times the amount of compensatory damages awarded.

The employment discrimination bar has been particularly concerned about Exxon’s impact in employment cases. For example, the Workplace Prof Blog notes that the 1:1 ratio “if applied to employment cases, would have devastating impact.”

We don’t believe that Exxon will have a significant impact on employment discrimination cases. First and perhaps most significant, the case is not controlling precedent in the employment discrimination context, as it was decided under federal maritime law, and the court relied heavily on state statutes in arriving at the 1:1 ratio. As neither of these sources of law has any bearing on employment discrimination law, the direct precedential effect of Exxon should be limited.

Second, the Court distinguished certain types of cases that would not be appropriate for the 1:1 ratio. One class of cases are those where the amount of compensatory damages available is low and therefore parties lack an incentive to file a case unless significant punitive damages are available. As the amount of damages available in employment discrimination cases is typically not the “staggering damages” that were awarded to the plaintiffs in Exxon, this factor suggests that the 1:1 ratio should not apply in employment discrimination cases.

Another factor is the Court’s concern for predictability in the award of damages. The Court notes that “the real problem … is with the stark unpredictability of punitive awards,” and that “a penalty should be reasonably predictable in its severity, so that even Justice Holmes’s ‘bad man’ can look ahead with some ability to know what the stakes are in choosing one course of action or another.”

The predictability factor is not necessarily implicated in the employment discrimination context. Under Title VII, for example, the statute expressly sets forth the maximum amount of compensatory and punitive damages that can be awarded. Thus, employers know their maximum exposure for damages in these cases, and unlike Exxon, they can plan for their damage exposure. Thus, at least for the types of employment claims that have statutory damage caps, such statutes eliminate the threat of uncertainty that the Court is so concerned with, thereby stripping away the Court’s principal reason for imposing a 1:1 limitation on punitive damages.