New Sexual Harassment Compensation Standard Should Make Employers Wary

A recent decision by the full bench of the Federal Court has significant ramifications for employers, who could find themselves liable for substantial damages in sexual harassment cases.

Under the Sex Discrimination Act 1984 (Cth), an employer may be found vicariously liable for sexual harassment occasioned by an employee if it occurs in the workplace or in connection with their employment. On the other hand, an employer can defend such a claim by demonstrating they took ‘reasonable steps’ to prevent the harassment, and, until recently, even if found liable were unlikely to face substantial damages.

However, both the first instance judgment and the appeal in Richardson v Oracle Corporation Australia provide important insight into these issues, and should caution employers about the potential pecuniary dangers of failing to prevent sexual harassment in the workplace.

In Richardson, an employee of software firm Oracle suffered numerous incidents of sexual harassment at the hands of a colleague. Ms Richardson attempted to handle the harassment by herself, before eventually making a formal complaint to the human resources department. The accused employee was given a ‘first and final’ warning, and subsequently Ms Richardson resigned.

In the initial decision, Buchanan J held Oracle vicariously liable for the sexual harassment because their code prohibiting sexual harassment and associated compulsory online training contained ‘serious inadequacies’. The Justice highlighted that ‘the test is a difficult one to satisfy’, which he inferred was an intention of the legislature, before concluding that Oracle had not ‘taken all reasonable steps to prevent sexual harassment.’

Buchanan J’s decision emphasises that employers must have sexual harassment policies that clearly prohibit harassment and explain its illegality, and should consider running regular face-to-face training sessions, if they are to rely on a ‘reasonable steps’ defence.

Despite Oracle being found liable in the first instance judgment and ordered to pay $18,000 in compensation, Ms Richardson appealed this assessment of damages. In a landmark recent decision, the Full Court expanded damages to $130,000, including $100,000 for non-economic loss.

In her individual judgment, Kenny J suggested the low range traditionally awarded for general damages in sexual discrimination and harassment cases risked ‘creating a time capsule’, which failed to recognise that ‘community standards now accord a higher value to compensation for pain and suffering and loss of enjoyment of life than before.’

Accordingly, Kenny J (with whom Besanko and Perram JJ largely agreed) held that Ms Richardson was entitled to significantly higher damages for the hurt, humiliation, mental distress and loss of enjoyment she had suffered. This was despite, in contrast to cases with similarly substantial awards of compensation, a lack of physical harm or (for the most part) serious diagnosed mental injury.

The take home message for employers is to be vigilant in attempting to prevent sexual harassment and other forms of unlawful discrimination in the workplace, lest they be found vicariously liable for such behaviour and ordered to pay significant damages. Having a clear and detailed sexual harassment policy, mandating comprehensive training, and swiftly responding to any alleged incidents are all steps that may provide a defence to vicarious liability for sexual harassment.

Bob Dylan once sang that ‘the times they are a-changin’, and it seems his 1964 sentiments have finally caught up to Australian discrimination law.

By John Wilson, Managing Legal Director, Employment Law.