In an unpublished decision issued in 2011, the Fourth Circuit Court of Appeals (which includes North and South Carolina) concurred with other federal appellate circuits in concluding that employers are responsible for sexual or other harassment of their employees engaged in by third parties such as customers or vendors, but only if they knew or should have known about the harassment and failed to act. Last week in a 2-1 decision, the Fourth Circuit affirmed use of this negligence standard in a precedential published decision.
 
In Freeman v. Dal-Tile Corp., the plaintiff was an African-American female customer service representative who testified that over a multi-year time period, a customer repeatedly used highly offensive racial and sexual terms and conduct directed at her. She claimed that many of these incidents occurred in the presence of her direct supervisor who did nothing despite her repeated complaints. Eventually she complained to human resources and the customer was banned from having contact with her, but she sued, claiming racial and sexual harassment under Title VII.
 
The district court dismissed the claim on summary judgment, holding that the company took reasonable steps to end the behavior once the plaintiff complained to HR. However in a 2-1 decision, the Fourth Circuit reversed this decision, remanding the claim for jury trial. In its decision, the Fourth Circuit confirmed use of a negligence standard for determining when employers are liable for harassment committed by third parties.  Although the defendant eventually responded to the situation, the court found that a reasonable jury could conclude that its reaction was tardy given the immediate supervisor’s knowledge of the earlier conduct.
 
The dissenting judge first questioned whether Title VII’s hostile environment harassment claim can be extended to actions by third parties. Second, he stated that the earlier harassment did not rise to the level of a hostile and offensive working environment, and that the employer put an end to the behavior before it reached this point.
 
Based on this decision, the Fourth Circuit squarely falls under the legal standard adopted by other federal courts. Employers are legally liable for third party sexual and other harassment, but only if they have reasonable knowledge of the conduct and fail to act. Supervisors should be trained that harassing conduct coming from customers, vendors, or any person who comes into contact with employees through their work should be immediately reported to human resources, and that the company will not tolerate such behavior regardless of the business relationship with the third party harasser.