Punitive damages are meant to punish the defendant, not compensate the Plaintiff. Generally speaking, they are allowed only in cases where the defendant’s conduct has been especially egregious. As a result, punitive damages are rarely awarded, leading many in the franchise community to disregard the danger of having punitive damages awarded against them.  

The danger, however, is real. A case in point was the recent punitive damages award in Tarr v. Bob Ciasulli’s Mack Auto Mall, Inc., 390 N.J.Super. 557, 916 A.2d 484 (A.D. February 2007). According to the published court opinion, this was a sexual harassment case where a relatively manageable award of $25,000.00 against an automobile sales franchisee ballooned into an additional $85,000.00 in punitive damages (and attorneys fees) resulting in a very expensive day for the Franchisee. 

Other recent cases have awarded significantly higher punitive damage awards (though they are often reduced later through the appeal process). The bottom line is that the franchise community, like any other employer, needs to be vigilant in preventing “bad” conduct from becoming “egregious/outrageous” conduct.

Address employee problems quickly and be proactive when an employee complains of discrimination and/or harassment. Taking these steps may very well convince a judge that, while the conduct may merit an award of compensatory damages, punitive damages are not appropriate.  In this way you can help manage risks and keep troublesome litigation from becoming business-killing litigation.