Academic journal article Missouri Law Review

Corporations Beware: The Eighth Circuit Announces New Criteria for Parent Corporation Liability and Constructive Notice of Harassment

Academic journal article Missouri Law Review

Corporations Beware: The Eighth Circuit Announces New Criteria for Parent Corporation Liability and Constructive Notice of Harassment

Article excerpt

Sandoval v. American Building Maintenance, Incorporated (1)

I. INTRODUCTION

In today's corporate environment, businesses face many sources of potential litigation, including products liability, employment issues, and harassment in the workplace, just to name a few. Large corporations can limit this liability by forming subsidiary corporations that insulate the parent corporation from liability with respect to the acts of its subsidiary. (2) Without this protection, investments in parent corporations would suffer because of the increased exposure to liability. (3) Under the limited liability doctrine, parent corporations can exercise a normal level of control over their subsidiaries without being held liable for their subsidiaries' actions. (4) However, courts are willing to look behind this corporate veil if the parent corporation exercises a high level of control beyond the normal parent-subsidiary relationship. (5)

One of the primary sources of potential liability for corporations involves a variety of harassment claims under Title VII. (6) For a corporation to be liable for harassment, the plaintiff employee must show that whatever entity she is attempting to hold responsible, whether it be a parent or subsidiary corporation, either knew or should have known about the harassment. (7) If the employer knew about incidents of harassment, then it is said to have actual notice of the harassment. (8) Moreover, if the harassment was so pervasive and widespread that the employer should have known about the harassment, then the employer is deemed to have been on constructive notice of the harassment. (9) Unless the plaintiff proves actual or constructive notice, the claim will fail as a matter of law. (10)

Two major issues for parent corporations are how to treat subsidiaries when forming harassment policies and how to deal with complaints of harassment relating to their subsidiary corporations. A parent corporation has two options. (11) First, it may take a hands-on approach and exert control over the subsidiary, thus making the parent more likely to be held liable for any damages caused by the subsidiary. Second, it may take a completely hands-off approach and hope to avoid liability for any unlawful activities that take place at one or more of its subsidiaries. While control in the area of harassment may not prove determinative when deciding whether a parent corporation sufficiently dominates its subsidiary, it is certainly a factor that the court is likely to consider. (12)

In Sandoval v. American Building Maintenance Inc., the United States Court of Appeals for the Eighth Circuit announced two very important principles affecting corporations in regard to harassment liability. (13) First, in looking at parent-subsidiary corporate relationships, the court re-established a four-factor test, which was vacated by the Eighth Circuit in 2007, that determines whether a parent corporation can be held liable for the acts of its subsidiaries. (14) Second, when looking at a hostile work environment claim, the Eighth Circuit held that events involving harassment at multiple locations of which the defendant corporation was aware can be admitted to show that harassment was sufficiently severe and pervasive to put the company on constructive notice of the harassment. (15)

II. FACTS AND HOLDING

Eleven plaintiffs brought sexual harassment, hostile workplace, and other employment-related claims against American Building Maintenance Industries, Inc. (ABMI), alleging violations under Title VII of the Civil Rights Act (16) and the Minnesota Human Rights Act. (17) Additionally, the plaintiffs brought an identical claim against American Building Maintenance of Kentucky (ABMK), a subsidiary corporation of ABMI. (18)

The plaintiffs alleged that they experienced sexual harassment, discrimination, highly offensive sexual comments, and inappropriate touching. (19) They claimed that these actions by their direct supervisors had a material effect on the terms and conditions of the plaintiffs' employment. …

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