In June, the United States Supreme Court issued an opinion providing new standards for recovering punitive damages in Title VII employment discrimination cases. Specifically, the Court held that an employer may be assessed punitive damages for employment discrimination without a showing of "egregious" misconduct. In delivering the opinion of the Court in Kolstad v. American Dental Association, Justice Sandra Day O’Connor reasoned that the congressional intent behind the damages statute was to provide punitive damages awards based on an employer’s state of mind. O’Connor thus concluded that punitive damages could be awarded where an aggrieved employee demonstrates that an employer discriminated "in the face of a perceived risk that its actions [violate] federal law. . . ."
In assessing the future application of this standard, the Court predicted that there will be instances in which an employer’s "intentional discrimination does not give rise to punitive damages. . . ."  There will be no such liability where an employer is unaware of the relevant federal prohibition, where an employer discriminates with the distinct belief that its discrimination is lawful, where the underlying legal theory of discrimination may be novel or otherwise poorly recognized, or where an employer reasonably believes that its discrimination satisfies a bona fide occupational qualification defense or other statutory exception to liability.  The essence of any recovery of punitive damages is still based on the employer’s "evil motive" in effectuating the harassment or discrimination, and evidence of egregious or outrageous acts on the part of the employer may serve to support such an inference.

Perhaps the most significant portion of the Court’s ruling is that an employer may no longer be held liable in punitive damages for the discriminatory employment decisions of a supervisor acting in a managerial capacity where his or her decisions run "contrary to the employer’s good faith efforts to comply with Title VII."  The Court noted with approval lower level cases in which good faith efforts on the part of an employer to institute a written discrimination and harassment policy served to protect the employer from liability for punitive damages. Further, "the institution of a written sexual harassment policy goes a long way towards dispelling any claim about the employer’s ‘reckless’ or ‘malicious’ state of mind."  The Court believes that the application of this new standard will aid in "motivating employers to detect and deter Title VII violations." Certainly, the Court’s decision provides employers with a strong incentive to implement and disseminate policies relating to workplace harassment and discrimination.