In 1998 the Supreme Court decided two cases on the same day that changed employment discrimination law and spurred a cottage industry: the redrafting of every employer’s handbook then existing. In Faragher v. City of Boca Raton, and Burlington Industries v. Ellerth, both decided on the same day, the Supreme Court made two important holdings relating to employer liability in sexual harassment claims.1 The Supreme Court held that "[a]n employer is subject to vicarious liability to a victimized employee for an actionable hostile environment created by a supervisor with immediate (or successively higher) authority over the employee." If the conduct results in a tangible employment action, such as discharge or demotion, the employer has no affirmative defense to liability.

If, on the other hand, the supervisor’s harassment did not culminate in a tangible employment action, the Supreme Court established an affirmative defense that an employer may assert to avoid liability in certain circumstances. To establish the affirmative defense under Faragher and Ellerth, the employer must prove: (1) "that the employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior," and (2) "that the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise."2 The employer must establish both elements to avoid liability through this affirmative defense. This was new to the law as the Supreme Court had never recognized an affirmative defense in Title VII actions before these decisions.

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