The company had an anti-harassment policy, trained its employee-relations manager to investigate complaints, and opened one. Then it assigned the accused supervisor to counsel the employee who complained about him.

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TL;DR: The only Black employee in an office reported racist conduct by her supervisor. The investigation skipped a key witness, failed to address threats intended to discourage HR complaints, and did not discipline the supervisor for his own discriminatory conduct. A jury awarded $500,000 in compensatory damages and $20 million in punitive damages. The district court cut the punitive award to $1 million, but the Third Circuit raised it to $2 million.

📄 Read the opinion

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She was the only Black employee in the office

The employee joined the company’s Penn State office as a customer service representative in October 2019. She was the only Black employee there. Her supervisor was the office’s only on-site supervisor and the person charged with keeping discrimination and harassment out of the workplace.

During her nine months there, the supervisor used a racial epithet to describe his dark-complexioned uncle. A coworker used another racial insult to describe her mixed-race granddaughter.

One day, the supervisor asked the employee what she thought about the N-word and tried to look it up. When he misspelled it, the coworker corrected him, pronounced the slur, and joined him in laughing. The employee testified that she vomited twice before reporting it the next day.

In another incident, a coworker placed a white hood over the employee’s head during a mandatory N95 respirator fit test. The supervisor commented about a white woman placing a white hood on a Black woman and laughed in the employee’s face. She connected the remark to the Ku Klux Klan.

She reported the conduct to employee relations and the supervisor’s manager. Trial evidence showed that when employees complained to that manager, he called the supervisor and they would “just laugh.” The investigation skipped a key coworker. Although the company learned that the supervisor threatened employees about complaining, it did not discipline him for the threats or his discriminatory conduct. It also assigned him to counsel the employee about workplace discussions.

Policies on paper could not carry the defense

The employer argued that it acted in good faith because the racial comments stopped after the report and it had responded effectively to the allegations. The court viewed the record differently. Jurors could conclude that the company failed to implement its policies in good faith when it left major allegations unresolved, overlooked threats, and placed the accused supervisor back in authority over the employee.

The employer appealed, arguing that punitive damages were unwarranted. The employee cross-appealed the reduction. In a nonprecedential opinion, the Third Circuit found $20 million constitutionally excessive but $1 million too low given the conduct, the employee’s vulnerability, the company’s resources, and its response. The court selected $2 million, four times the compensatory award.

The facts are extreme, but the failure points are familiar: who participates in the response, whether key witnesses are heard, and whether the accused manager faces consequences. Three practical lessons follow.

The alleged harasser cannot control the response

Assigning an accused supervisor to counsel the complaining employee preserves the same power imbalance. Separate the supervisor from the response, interim protections, coaching, and decisions about the employee’s working conditions.

A complete investigation supports a good-faith defense

An investigation is only as credible as the evidence it pursues. Interview identified witnesses, resolve conflicting accounts where possible, document why any lead was not followed, and address retaliation or threats as separate allegations.

Section 1981 can change the damages calculation

Section 1981 does not impose Title VII’s statutory damages caps. Employers defending race claims should evaluate punitive exposure early, including whether the record proves that policies were enforced against decision-makers instead of merely distributed to employees.

The appeals began with a $1 million punitive award. They ended with a $2 million award.