Sexual Harassment Claims in the Workplace: It's Not Just a Legal Problem; It is a Business Problem for Employers
Author: Nicholas J. Toghia, BA, JD, MBA
Under a new California state law, companies with as few as 50 workers must train all supervisors in sexual harassment prevention techniques by Dec. 31, 2005 — and then repeat that training every two years. The training must be conducted via "classroom or other effective interactive" method. Included in the headcount are full time, part time, and contract employees and even workers who are at remote locations such as out-of-state marketing and sales representatives.
The law - a response to the persistently high number of sexual harassment claims filed in California - comes on the heels of an already well established framework dealing with quid pro quo and hostile work environment rules, but according to the author of AB 1825 (Government Code section 12950.1; full text available at www.leginfo.ca.gov) despite legal protections already in place, sexual harassment in the workplace remains a major problem in California. According to the legislative history of AB 1825, the California Department of Fair Employment and Housing – our state agency equivalent of the federal EEOC - handled 4,231 cases during the 2002-03 fiscal year. This represented 22% of all cases filed at DFEH.
One report cited by the lawmakers claims "sexual harassment costs the average Fortune 500 company $6.7 million per year in indirect costs alone." Based upon the total size of the workforce of these corporate giants, this calculates to wasted expenditures of $282 per employee and does not include the damages, restitution, reinstatement, back wages, forward wages and other benefits that were paid to the victimized employees. Obviously, for a small to midsize company with a workforce only a tiny fraction of the number of workers employed by any Fortune 500 corporation, the per capita costs will be substantially larger and the ability to absorb the financial detriment will create a more devastating impact.
The processing, investigation and disposition of these cases cost a lot of money for taxpayers. So, the state's reaction was the enactment of a new law that shifts the burden for training and education of supervisory employees to the employer. Although sexual harassment law has never been interpreted as a general civility code of behavior, it is clear that one purpose of the new rules is to produce better-mannered employees. This should benefit not only workers but also mitigate the risk of exposure to sexual harassment claims for employers resulting in better financial performance for the company.
The sophisticated company executive should view sexual harassment not just as a legal problem but also as a business issue and its prevention a quality management issue. Even if employment practices liability insurance is available as a useful risk transfer device, it is not the 100% solution. While indemnification and defense coverage with respect to a sexual harassment suit can be purchased under an EPL policy the employer's loss history will likely result in substantially higher premiums, higher deductible, reduced policy limit, or the cancellation (or nonrenewal) of coverage. In some cases or in some industries that represent higher than standard risk, coverage may not be available at an affordable price.
Most importantly, a sexual harassment suit, as opposed to a slip-and-fall suit, for example, is likely to result in adverse publicity and loss of goodwill. There is loss of business opportunity, damage to reputation, bad press reviews, tarnishing of prestige in the marketplace, and a black eye in the community. So while the employer transfers a portion of the risk, it retains the stigma. Such is the case even if the employer prevails from a legal standpoint. Adverse publicity and loss of goodwill translates into declining revenues, difficulties in attracting good employees, higher employee turnover, increased training costs, and loss of institutional knowledge. In sum, from a risk management standpoint, sexual harassment exposure warrants greater attention than has been the case historically in dealing with other types of risks.
Therefore there are at least three compelling reasons for employers who fall into the covered class under AB 1825 to educate and train their supervisors: the new law makes it mandatory; the financial exposure to claims makes prevention a prudent risk management tool; and the damage to the business from a sexual harassment complaint can be significant. The December 31, 2005 deadline is just around the corner. Prudent executives of companies will not leave this task to the very last minute.
About the author: Nicholas J. Toghia, BA, JD, MBA - Opus Group LLC Sexual Harassment Prevention Training- AB 1825 compliance - California