Courts have made it clear that punitive damages are recoverable in employment cases as long as the plaintiff can satisfy the strict pleading and proof requirements for punitive damages generally. In employment cases, the employer's liability for punitive damages will often turn on the definition of who in the organization can be deemed a "managing agent."

Most of the recent cases demonstrate that only a high-level supervisory or management employee with broad discretionary or policy-making authority will be considered a managing agent under the punitive-damages statute. If the supervisor or manager does not meet this standard, then punitive damages against the employer are not available absent ratification of the conduct or the employer's advance knowledge of the employee's unfitness and continued employment in conscious disregard of the rights of others.

California Civil Code Section 3294(a) permits an award of punitive damages when a plaintiff proves by clear and convincing evidence that the defendant is guilty of "oppression, fraud or malice." Under Section 3294(b), an employer can only be liable for punitive damages for acts of an employee where the employer had advance knowledge of the unfitness of the employee and employed him in conscious disregard of the rights of others; authorized or ratified the employee's wrongful conduct; or was personally guilty of oppression, fraud, or malice.

Where the employer is a corporation, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud or malice must be by an officer, director or managing agent of the corporation. Since the vast majority of employment cases against corporate employers do not directly involve the acts or omissions of corporate officers or directors, the alleged wrongdoer's status as a managing agent is critical to the punitive-damages issue.

While the California Supreme Court has not directly answered this question in an employment-law case, the court has considered the punitive-damages issue generally. The court has held that in analyzing the managing-agent issue, the "critical inquiry is the degree of discretion the employees possess in making decisions that will ultimately determine corporate policy." Egan v. Mutual of Omaha Ins. Co., 24 Cal.2d 809 (1979).

Moreover, the managing agent must be "acting in a corporate or employment capacity when the conduct giving rise to the punitive damages claim against the employer occurred." College Hospital Inc. v. Superior Court, 8 Cal.4th 704 (1994). In several California Court of Appeal decisions, low- or mid-level supervisors were not considered managing agents for punitive-damages purposes.

In Kelly-Zurian v. Wohl Shoe Co., 22 Cal.App.4th 397 (1994), the plaintiff brought a sexual harassment claim against her former employer and immediate supervisor, the alleged harasser. The jury found that her supervisor sexually harassed the plaintiff and awarded compensatory and punitive damages.

On appeal, the 2nd District Court of Appeal considered whether the employer was liable for punitive damages based on the supervisor's conduct. Since the jury found that the employer did not ratify the supervisor's conduct, the employee's liability for punitive damages turned on the supervisor's status as a managing agent. The evidence at trial showed that the harasser directly supervised the plaintiff, had control over her job responsibilities and had the authority to terminate her employment.

In holding that the supervisor was not a managing agent, the court focused on the absence of any evidence that the supervisor was in a "policymaking position". Since the supervisor did not have any authority to "change or establish business policy" for the company, he was not a managing agent and the employer was not liable for punitive damages for his conduct.

Another recent decision arguably expanded the managing-agent analysis in Kelly-Zurian. In White v. Ultramar Inc., 62 Cal.App.4th 939 (1998), the 4th District Court of Appeal disagreed with Kelly-Zurian that a supervisor must have the authority to establish policy to be a managing agent. The court held that a supervisor that had control over the plaintiff's employment and made the decision to fire him was a managing agent The Supreme Court has granted review in White on another issue and it can no longer be cited for authority.

More recently, the 1st District Court of Appeal weighed in on the punitive-damages issue and held that two high-level managers employed by a large nursing home chain were managing agents. Maxwell v. Beverly Enterprises-California Inc., 98 Daily Journal D.A.R. 5587 (May 28, 1998). Once again, the focus in the case was on the actual extent of the supervisors' responsibilities and whether the supervisors met the "high policymaker" criteria.

Sharon Maxwell sued her former employer and two managers for wrongful termination. One of the managers, Sara Thomas, was the director of operations and had overall responsibility for eight nursing homes. Thomas also was responsible for ensuring that the nursing home staff complied with government regulations and supervising the administrators that ran the eight nursing homes in her region.

The other manager, Judith Pleshek, was the on-site administrator of the nursing home where the plaintiff worked. As the administrator, Pleshek was the highest-ranking manager at the nursing home and had responsibility for overseeing operations at the home, supervising, evaluating and counseling the department heads and monitoring the quality of care given to the residents of the home. Both Thomas and Pleshek were the decision-makers with respect to the plaintiffs termination. The jury found in favor of the plaintiff and awarded her punitive damages.

On appeal, the employer argued that neither manager was a managing agent who could subject the employer to punitive damages. The court, however, affirmed the punitive-damages award. The court noted that "not every supervisor is necessarily a managing agent" but Pleshek and Thomas were.

In regard to the lower-level supervisor, Pleshek, the court focused on her job duties as the nursing home administrator. The court held that Pleshek was indeed a managing agent for punitive-damages purposes because the evidence revealed that she had "broad discretionary powers which attended to all areas of the staffing, management, hiring, firing, contracting, supervising, assessing and establishing of policy and practice in the facility."

The court then distinguished Kelly-Zurian by noting that although the supervisor in that case had the power to hire and fire employees, he did not have the authority to change or establish company policy as did Pleshek.

In Weeks v. Baker & McKenzie, 63 Cal.App.4th 1128 (1998), the California Court of Appeal for the 1st Appellate District affirmed an award of punitive damages against the law firm based on a partner's sexual harassment of his secretary. The court held that punitive damages against the firm was supported by evidence that the firm's management had prior knowledge of the partner's likelihood of harassing female employees from an earlier sexual-harassment complaint and employed him in conscious disregard of the rights and safety of other employees.

Being a ratification case, Weeks is consistent with Kelly-Zurian and Maxwell since there was no question that the harasser's prior misconduct in Weeks was well-known by managing agents of the firm and that despite this knowledge, they apparently allowed him to continue working without serious efforts to restrain his harassing behavior.

Counsel litigating employment cases should be aware that employers may still argue that low or mid-level supervisors are not managing agents for punitive-damages purposes, citing Kelly-Zurian and Maxwell. Under Kelly-Zurian, a supervisor's authority to hire and fire alone is simply not enough to make the supervisor a managing agent. If the evidence regarding a supervisor's responsibilities is undisputed, the punitive-damages issue could be raised on summary judgment. Aquino v. Superior Court, 21 CalApp.4th 847 (1993).