Under the Supreme Court's Farragher and Ellereth decisions, employers are liable under Title VII for harassing conduct by supervisors even if they were not aware that the harassment was occurring. The employer can only avoid liability in situations where the employee failed to take advantage of reasonable preventative or corrective measures put into place by the employer.

Earlier this month, the Fourth Circuit Court of Appeals (which includes North Carolina and South Carolina) concluded that an employer's offer of a severance package to an employee who complained of sexual harassment by her supervisor created a factual question over whether she had been terminated, and could therefore seek damages from the employer under Title VII.

In Dulaney v. Packaging Corp. of America, the plaintiff complained that her supervisor had subjected her to severe sexual harassment. The company initiated an investigation, and the supervisor resigned shortly thereafter. The plaintiff continued to claim that co-workers were harassing her over the previous incidents. In response, the company provided her with a separation agreement, including severance provisions and a release of claims against the company. She declined the severance, and claimed that she was terminated as a result.

The employer responded that the employee was never fired, and quit over her displeasure with the situation. It claimed that the company was entitled to assert the Farragher-Ellereth defense, because the supervisor was immediately removed from the workplace once management became aware of the allegations, and because the plaintiff had quit rather than having been fired.

The Fourth Circuit disagreed, reversing a grant of summary judgment, and remanding the case for trial. The court first concluded that the plaintiff had suffered a "tangible employment action" because the employer had stated on several occasions that her employment had been terminated as a result of her refusal to accept the severance package. A reasonable person in her position could have concluded that the presentation of the severance agreement meant the end of her employment with the company.

Second, the Fourth Circuit rejected the employer's assertion that it was not liable for the termination under Title VII because it did not result from the supervisor's alleged harassment of the plaintiff. There was a clear nexus between the alleged harassment and the plaintiff's departure from employment.

Employers are sometimes tempted to deal with messy and disruptive harassment allegations by attempting to remove the alleged victim from the workplace. Companies should realize that this option presents substantial legal risks. If the employee does not accept the separation offer, the attempt to remove the employee from the workplace could jeopardize the employer's legal defenses to the underlying harassment claim.