“We never thought this could happen to our company.Ó I hear this lament frequently from managers and owners when a lawsuit is brought against their company for sexual harassment. These executives are often surprised to learn that, in some instances, a company may be held liable for sexual harassment of one of its employees even if the companyÕs management was unaware of the conduct giving rise to the claim.
Claims of sexual harassment, a form of sex discrimination prohibited under both state and federal law, are frequently emotion-charged, painful, and very disruptive to the fabric and culture of an organizationÑfar more so than the usual business litigation in which a company may become involved. These claims are likely to be intensified in a family owned business, and, indeed, are likely to shake the very foundations of family trust and teamwork. This is particularly true if it is a family member charged with harassment.
Sexual harassment in the workplace is a growing problem. In a recent survey by the Society for Human Resource Management, the number of organizations reporting one or more incidents of such harassment nearly doubled over a previous survey, from 35 percent in 1991 to 65 percent in 1993. Faced with this proliferation of claims, more and more organizations are implementing preventative measures. The Society for Human Resource Management reported that nearly 97 percent of the 292 respondents to its survey said they have written anti-harassment policies and procedures for handling complaints.
The way in which an organization responds to a report of sexual harassment is critical in any judicial test of a companyÕs liability for the wrongful conduct of one of its employees. And a family owned and operated business may encounter special hurdles in implementing procedures in response to reports of sexual harassment. The cases described on the following pages illustrate different responses by two family companies to a report of sexual harassment. One case shows how an inadequate response can expose a company to legal liability, and the other how a company can provide some insulation against liability. (Both cases are based on actual incidents, though the names of people and companies have been changed.)
Typically, organizations with anti-harassment policies delegate responsibility for receiving and investigating such complaints to certain employees, who receive special training for this work. The investigations are conducted with safeguards to preserve an appropriate degree of confidentiality and to ensure that there will be no retaliation against an employee for making the report. When the harassment is found to have occurred, the investigating manager either determines the appropriate sanction for the harasser or makes recommendations to a company panel charged with ruling on such sanctions, which may consist of both management and non-management employees.
The development of such an internal review procedure may be more complicated for a family owned and operated business because of the very nature of the management structure. If the firmÕs entire management structure consists of family members, non-family employees may feel that they do not have a viable ÒsafeÓ and impartial reporting and investigative process if management is involved, particularly if the complaint is against a family member or manager. Yet the alternativeÑto have non-family managers investigate the reported harassmentÑmay be undesirable for other reasons.
Only a family owner may have enough power to ensure that a complaint is fully investigated and, if the alleged harassment has in fact occurred, take steps to prevent it from happening again. Moreover, as in Case I, a nonfamily manager may be extremely reluctant to pursue a harassment complaint against a family member. Since the organizationÕs response to a complaint will have a significant effect on whether it will be held legally responsible for harassment, it is thus risky in a family company to delegate that response entirely to nonfamily management.
Clearly, it is wise for managers of family owned businesses to develop policies and procedures for responding to sexual harassment claims before such claims are made, free of the organizational stresses that may be triggered by a report. Here are some recommendations for formulating and implementing a policy that provides a company with some legal protection:
•Develop written guidelines. The company should have an express policy stating that sexual harassment is prohibited and that such conduct will not be tolerated in the workplace or in work-related settings. The policy statement should include guidelines with examples of the types of conduct that constitute sexual harassment. It should encourage employees to report incidents, regardless of the alleged offenderÕs position or identity. Moreover, it should clearly state that those who after an investigation are found to have engaged in such conduct as well as those who make false accusations will be subject to disciplinary action, which can range from a warning or suspension to termination.•Be prepared to investigate promptly and objectively. The investigation mostly involves interviewing the alleged offender along with co-workers and managers who may have witnessed the harassment. The company may want to contract for the services of an employment specialist trained in sexual harassment complaints to investigate and make recommendations.
•Keep key people informed. When the investigation is completed, the company should advise both the complaining employee and the alleged harasser of the findings. If sexual harassment appears to have occurred, the company should take appropriate disciplinary action. Sexual harassment can be a traumatic event for family companies, which often pride themselves on their ÒfamilynessÓ and informality. However, careful preparation and a professional response to complaints of sexual harassment are essential to containing the problem and keeping it from reaching the courts.
Case I
Offensive Behavior by the Bosses' Son
The first sign of trouble at Mattson & Associates, a large management consulting firm, came when a female employee in the marketing department asked to talk confidentially with her supervisor. In the last several weeks, the woman reported, Paul Mattson, 24, the son of the firmÕs founder, had asked her almost daily to date him. Young Mattson was working in the firm part-time until he could complete his business degree, and then was expected to join the management team. The woman told her supervisor that he was always hanging around her office and frequently made suggestive comments to her or asked her about her sex life. She had made it clear that his behavior was unwelcome.
PaulÕs parents, Jim and Helen Mattson, are both top managers in the firm, which started with five employees in 1972 and now has more than 150. The supervisor to whom the sexual harassment charge against young Paul was confided is an experienced, nonfamily manager, reporting to Helen Mattson, the head of marketing.
He expressed disbelief at the womanÕs claim, telling her that he had known young Paul since he was a boy and did not believe him capable of such behavior. The woman denied, when asked by the supervisor, that she had done anything to encourage his sexual attentions. The supervisor then suggested that she try to avoid Paul in the future, and that the young man would probably lose interest. He also indicated that they should both remain silent about these incidents since they both might be fired if the complaint reached Mr. and Mrs. Mattson.
Three weeks later the employee reported to her supervisor that Paul had followed her out to her car, engaged her in conversation, then grabbed her arms, kissed her, and attempted to fondle her breasts. The supervisor was again incredulous and said he couldnÕt believe Paul would do something like that. He asked the woman whether she had been wearing something provocative at the time. She said no. The supervisor said it would Òjust killÓ PaulÕs parents to hear about this. He suggested that she make it clear to Paul again that she did not appreciate his behavior.
After consulting a lawyer, the employee filed criminal charges against Paul for assault and battery, and a discrimination suit against the company for failing to take action on her sexual harassment complaints. However, the woman continued to work at the marketing department, where she had daily contact with Mrs. Mattson. Upon learning of the employeeÕs legal actions, however, Mrs.Mattson changed the employeeÕs job responsibilities so the woman no longer had any contact with her. In addition, the employeeÕs office, which had been next to Mrs. MattsonÕs, was moved to a different floor.
Analysis
The supervisorÕs knowledge of the harassment and his failure to take action is likely to be sufficient to impose liability on the company. Further, the supervisorÕs comments in response to the complaint may be grounds for a second, separate sexual harassment complaint.
One of the risks in a family business is that a nonfamily supervisor or executive may not pursue a harassment complaint against a family member because he or she thinks the report will embarrass the family or will not be acted on by those at the top. Nonfamily managers who pursue such complaints may feel they will incur the displeasure of the family and perhaps even risk their jobs. This leads to a significant risk that these managers will decide, on their own, not to take the complaint any further.
It is therefore important for a family owned business to demonstrate its commitment to its anti-harassment policy and to the uniform application of the policy to all employees. The company should endorse clear procedures for reporting and investigating all complaints, including those against family members.
In this example, the company may also be liable for taking retaliatory action against the complaining employee. As a general rule, the terms and conditions of such an employeeÕs job responsibilities should not be altered unless he or she requests it.
Case 2
A Performance Review in a Bar
One of the female employees of the Johnson Garden Tools Co. recently complained to the founderÕs son, David Johnson, about the head of the retail management group, John Bates. The woman reported that Bates, a nonfamily manager who heads the retail department, frequently engaged her in discussions of sexual matters that were inappropriate at the office. She said that her often made vulgar jokes and asked her very intimate questions about her sex life.
On the most recent occasion, she told Johnson, Bates had insisted on giving her an annual performance review at a bar, after work. She sat next to him, at his urging, and, during the evaluation, he had several drinks, engaged in a discussion of various sex acts, and made lewd jokes. She indicated discomfort at these comments, saying, ÒThatÕs really rude. You shouldnÕt be saying those things to me. I find them offensive.Ó
The evaluation was Òmixed,Ó she later reported to David Johnson. Bates told her she would do better the next time if she Òjust loosened up.Ó Since then, he has continued to make sexually explicit remarks to the woman.
In taking her claims to David Johnson, the woman created an awkward situation for the young executive. Although David is ultimately expected to become CEO of the company, right now he reports to Bates, who has been with the company since it was launched. Management is small groupÑonly three family members and two nonfamilyÑwho have all worked closely for more than 20 years.
Johnson Garden Tools has an anti-discrimination policy, but no formal complaint procedures. David Johnson therefore informed the complaining employee that he needed to find out the correct procedure for investigating and acting on her complaint and would get back to her as soon as he could. Upon reflection, he decided that for him as a family member to get involved in investigating the complaint might add an inappropriate element to the situation. Likewise, for him to confront John Bates, his supervisor, might look like a power play on his part. He therefore reported the incident to one of the companyÕs nonfamily vice-presidents.
Because the firmÕs management team was so small, the company decided that it would strain relations among them to have a member of the team investigate the complaint against Bates. There was concern that any investigation of Bates by his colleagues might be challenged as biased in his favor.
Instead, the company decided to retain an outside consultant, in this case a lawyer, trained in handling sexual harassment charges, to investigate the complaint. After an investigation, the consultant concluded that BatesÕs behavior did, in fact, constitute sexual harassment under the law, and he recommended that Bates be given a warning that if his conduct recurred, he would be terminated. He recommended further that Bates be required to participate in a series of training seminars on what constitutes sexual harassment. Finally, the complaining employee was re-evaluated and told that her future performance would not be judged, in any way, on whether or notÑin BatesÕs wordsÑshe Òloosened up.Ó
Analysis
The company is probably protected against liability because of David JohnsonÕs prompt response to the complaint and because of the companyÕs careful investigation and implementation of the recommendations. The decision to retain an outside consultant to investigate the complaint was prudent because of the closeness of the management group, even if it made the procedure more cumbersome.
The resolution of such complaints necessarily varies according to the severity of the offending conduct. A warning and training requirement may have been appropriate in the case of John Bates, a first-time offender whose behavior, though highly offensive, did not cross certain boundaries. But these remedies may not have been sufficient to protect the company from liability if, for example, this had not been the first complaint against Bates or if he had actually touched the employee in an offensive manner.
Adrienne M. Markham is a specialist in employment litigation and a director of the Boston law firm Goulston & Storrs P.C. This Advisor column is adapted from the Winter 1995 issue of Family Business Quarterly, published by the Northeastern University Center for Family Business, with case studies added by the author.