Employees (or more frequently, ex-employees) often harbor the impression that the threat of punitive damages will force their employers into a quick settlement of whatever complaint they have with their employer. They need to be disabused of that notion in all but the most egregious situations. In New Jersey punitive damages verdicts are hard to come by.
The same is true, and increasingly so, in the federal courts, especially in light of the Supreme Court's ruling that in order to meet constitutional due process requirements most punitive damages awards should be in a single digit ratio to compensatory damages, that is, not more than 9:1.
Law.com reports that the United States Court of Appeals for the Third Circuit, the federal appellate court that covers New Jersey, has drastically reduced an award of punitive damages to a plaintiff. The case is not an employment dispute, so we will not go into detail here about the facts. Suffice it to say that a jury awarded the plaintiff $109,000 in compensatory damages and $30 million in punitive damages. The trial judge reduced the punitive damages award to $2 million, finding the jury's 275:1 ratio to be plainly excessive and unconstitutional. The trial court's reduction brought the ratio down to about 18:1.
The Court of Appeals further reduced the punitives award to $750,000, a ratio of about 7:1.
It is important to understand that the analysis of the constitutional viability of a punitive damages verdict is more complex than the rote application of a mathematical formula. Nonetheless, the Third Circuit's analysis signals that increasingly careful review will be engaged in by the appellate courts, which will not hesitate to overrule the trial courts when they believe that constitutional boundaries are exceeded. And this in turn means that plaintiff's lawyers usually should counsel their employment law clients not to pin their hopes of success on a significant punitive damages award. Management side lawyers, conversely, now can counsel their clients with greater assurance and a better answer to the question "what's the exposure on punitives?" than "whatever the jury decides."