Sexual Harassment
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By: John DeFazio, C.P.C.U., A.R.M., & Justene M. Adamec, Esq.

Sexual harassment lawsuits are prevalent in the courts and in the news, yet employers rarely expect that their company will be sued. As a result, few employers plan for that eventuality beyond placing a clause in their employee manual prohibiting sexual harassment. Whether a company employs 1 or 1000 employees, it should know what can happen and how to prevent or minimize the impact of a lawsuit.

A sexual harassment lawsuit can make a huge impact on a company. Employees making less than $50,000 can and do ask for -- and sometimes get -- verdicts in the six figures. In one recent case, the California appellate court affirmed an award of $125,000 in compensatory damages (punitive damages can be added onto that number) when the employee showed only $7000 in lost wages and a few hundred in medical expenses. The rest of the damages were for "emotional distress." Recent settlements and verdicts reported in the Los Angeles Daily Journal range from $50,000 to $1.9 million. Obviously, a small to midsize company can be put out of business by such a suit.

A lawsuit will usually start with a claim by the employee to the California Department of Fair Employment and Housing (DFEH) or the federal Equal Employment Opportunity Commission (EEOC). The agency will either issue a right-to-sue letter allowing the claimant to sue in federal or state court or the agency to conduct an investigation and then, if they find the claim has merit, the agency will attempt to resolve the matter or may sue in its own name. If there is action by the EEOC or the DFEH, successful settlement at the agency level can end the matter because the employer can ask for a release of all claims in exchange for the payment of money or the making of other concessions. Therefore, it is advisable to call in legal counsel as soon as a claim is made.

As with anything else, an ounce of prevention is worth a pound of cure. California Labor Code 12950 sets forth minimum standards for the prevention of sexual harassment and requires employers to post the latest poster in a prominent place and to distribute an information handout to all employees. However, the statute is clear that "an employer's compliance with this section does not insulate the employer from liability for sexual harassment of any current or former employee . . . ." A compliance audit of your company's practices may be advisable.

Sexual harassment is only one type of employment claim that can have a negative impact on your bottom line. Other types of claims include wrongful termination claims, racial discrimination, age discrimination, and claims under the Americans With Disabilities Act.

Insurance is available to cover any potential claims. Employment Practice Liability Insurance can cover both judgments and the cost to defend a broad spectrum of employment related claims. Unless you have Employment Practice Liability Insurance, your business is almost always uninsured against employee's claims. A sample General Liability Policy applies to bodily injury or property damage, but excludes bodily injury to an employee.

The cost and terms of Employment Practice Liability Insurance are directly related to the quality of your human resources policies and procedures. A compliance audit will be part of the application process. The following are some of the questions you can expect to be asked by the underwriters:

  1. Has your company adopted an anti-discrimination and anti-sexual harassment policy which conforms to EEOC guidelines?
  2. Has your company prepared job descriptions defining the essential functions of its jobs?
  3. Does your company's policy on office holidays violate federal and state laws?
  4. Does your company post all employment related notices and posters required by law?
  5. Do your company policies provide for non-discriminatory reductions in force and layoffs?
  6. Has your company minimized its exposure by implementing a program to evaluate performance effectively?
  7. Does your company's employee handbook inadvertently create rights that may limit its ability to terminate or discipline employees?

Employment Practice issues will be important to employers of all types and sizes throughout the next few years. If you and your clients are aware of the exposures in this area and know how to control them, you will be more likely to keep yourselves out of the courts and doing what you do best -- running your businesses.

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