Yesterday Jake complimented Sarah on her “sexy” new hairdo. Today he patted Marianne on the shoulder and thanked her for wearing a “revealing” new outfit. As for Deborah, the regional vendor rep: Jake has been pressing her for a date to “get better acquainted.”

Maybe Jake is a top-performing employee, and maybe the women always seem to play along with his chatter. But the fact remains that Jake is a ticking time bomb. His comments are creating a hostile work environment that can affect morale and lead to a costly sexual harassment lawsuit. The recent nationwide headlines about misdeeds in high places should remind everyone that a toxic workplace can threaten the bottom line.

“Ignoring the issue of sexual harassment can lead to disaster on many levels,” says Joseph P. Harkins, a Shareholder in the Washington, DC office of San Francisco-based Littler, the world’s largest employment law practice representing management. “Businesses can be subject to costly financial settlements, damaging morale issues and negative publicity.”

Beware the risk

People often think of sexual harassment in terms of quid pro quo: a supervisor offers someone a job or a raise in return for a sexual act. But in today’s workplace most sexual harassment stems from a much more insidious problem. “Statistically, most complaints in recent years are not for quid pro quo harassment but for environment claims such as inappropriate comments and jokes,” says Harkins. That’s why Jake, in our opening scenario, poses such a threat.

The issue has become more acute as employees have become more willing to speak up about people like Jake. “We have come to a tipping point in society where people are starting to believe individuals who say they were sexually harassed,” says Valda Ford, CEO of Omaha-based Center for Human Diversity. “And that’s a good thing. Before, it was too often a case of ‘he said, she said.’ But now people will no longer deal with these indignities.”

Costly lawsuits

The financial cost of sexual harassment lawsuits is top of mind for many business owners. And the cash involved can certainly be substantial: While federal law caps compensatory damages at $300,000, most state laws have no such ceiling. “It is popular for plaintiffs to sue under state law for the unlimited damages,” says Harkins. And the financial costs don’t end there, he adds: “Most statutes include fee shifting provisions, so a prevailing employee’s attorney fees are paid by the employer. It’s not uncommon for attorneys’ fees to come to a quarter of a million dollars, on each side.”

Moreover, transgressors can incur personal responsibility. “Some state laws extend liability for general sexual harassment to the individual,” says Bob Gregg, co-chair of the employment practice law group at Boardman and Clark LLC, Madison, WI. This is especially the case if the harassment involves touching and groping, which can be deemed assault and battery. “Individuals can also be held liable for defamation if they spread false information, or make mocking comments, about a person’s sexuality,” he says. Finally, individuals can be held personally liable for sexual harassment against third parties such as customers, suppliers, or public visitors to the workplace.

Don’t think only big employers are at risk. “Federal anti-discrimination law covers businesses with 15 or more employees,” says Harkins. “And most states have similar laws which cover even smaller ones.”

Beyond financial loss from lawsuits and settlements, an organization with unchecked harassment can suffer a costly loss in staff morale. “Sexual harassment is a form of bullying,” explains Ford. And bullying, she says, can take a toll on performance. “Instead of being productive, a harassed individual becomes constantly afraid of encountering another comment, another inappropriate touch, another arrival of that creeping feeling of ‘here we go again.’”

The harm can affect the employer’s reputation. “Abused individuals will likely go into a protective stance when asked by a prospective employee about working at the company,” says Ford. “They will try to find some way to alert the person about the abusive environment.” In contrast, she adds, satisfied and secure employees are great recruitment tools. “There is no marketing better than someone saying, ‘I love where I work.’”

Protect yourself

How can you protect your business? Gregg says an organization can mount a sexual harassment defense by showing two things: First, that it took reasonable care to prevent and correct harassment; and second, that the plaintiff did not take advantage of corrective opportunities the employer had established.

While those general guidelines are important, Gregg points to two exceptions. The first is any quid pro quo act, such as an individual being promoted in exchange for a sexual favor, or being terminated for refusing one. The second is any act by a top-level executive. “If I am a top manager, then my acts are perceived by the courts to be those of the organization itself,” Gregg explains. This exception is a particular danger to smaller businesses, where just about any manager or supervisor might be perceived as a top-level manager.

With those guidelines in mind, here are some practical steps recommended by attorneys:

Step 1: Create good policies. “The number one step for protecting your business is to write policies that prohibit sexual harassment and promote a respectful workplace,” says Gregg. “And don’t just bury them somewhere in your employment handbook. Communicate them in employee orientations and continually emphasize them in staff meetings.”

Step 2: Establish a reporting procedure. “Designate properly trained individuals to whom complaints can be made,” says James J. McDonald, Jr., managing partner at the Irvine, CA office of Fisher & Phillips. He warns against the common mistake of requiring complainants to report incidents to supervisors, who may not have the requisite training or may themselves be offending parties. And bear in mind that many people refrain from reporting incidents out of a fear of retaliation.

So who should play the role of reporting point? Larger organizations may assign properly trained individuals in the human resources department. Smaller ones may contract with an independent HR service firm. But how about the very smallest businesses—those which can’t afford the full-time services of an outside organization? “Some human resources consultants provide fractional services for smaller clients,” says McDonald. “They might, for a reasonable fee, provide an individual on site for two days a week, and offer availability by telephone hotline on other days. That resource can make all the difference when an incident occurs.”

Step 3: Train your personnel. The most carefully designed policies will only work if supervisors are trained to identify and respond appropriately to incidents of sexual harassment. “We all have to be educated,” says Ford. “Plenty of people make mistakes from simple ignorance. They just do not know what they are doing.”

All levels of personnel need training on company policies and on the established channels for reporting incidents. And everyone needs to understand they are expected and encouraged to come forward with complaints. “Plenty of people encounter sexual harassment but hesitate to take action,” says Ford. “That’s because they have always lived in an environment where saying something about the problem makes you a coward, or not able to keep a stiff upper lip.”

Step 4: Respond quickly to complaints. Take prompt action when individuals report harassment. “One of the biggest errors employers make is not listening when people raise issues,” says Gregg. “Employers often don’t take reports seriously.”

Your business benefits when quick responses to complaints help establish credibility in your prevention program. “People are more prone to utilize internal resources to resolve problems if their employer has a record of prompt and effective action when harassment is reported,” says McDonald. “On the other hand, if an employer has not taken sexual harassment reports seriously, people are more likely to use outside attorneys to sue when harassment occurs.”

Involve the complainant

Investigate each complaint thoroughly, interviewing any third-party witnesses. And find out what corrective action the complainant deems appropriate. “While you don’t want the complainant to decide what action is taken, you do want to get that person’s input on whether termination or a lesser remedial measure is appropriate,” says Harkins.

Complainants may have any number of reactions to what they have experienced. “Sometimes they say the harassment was not severe but they reported it because they just wanted the organization to know about it,” says Harkins. “Sometimes they just want to have a discussion, or just have the person counseled. And still other times they ask that a person be terminated for making a single, unfunny joke.”

If the remedial action does not satisfy the complainant, Harkins suggests involving the person in any new training that the company will be introducing to the workplace. That can help to provide a broader base of knowledge so that focus is taken off the individual and put onto a general improvement in the environment.

Communicate your seriousness about the issue by actively monitoring your workplace for violations. “Don’t just wait for complaints to be filed,” says Gregg. “Be proactive.” Make sure all supervisors realize they have a duty to take action when a questionable event occurs.

Such monitoring should include behavior that might not yet be illegal but that has the potential to escalate, says Gregg. “When a person is nasty, surly, and engaged in behavior that is disruptive and abusive, speak up and say you expect the individual to be civil.”

Indeed, attorneys recommend being alert to any activity that reflects a disrespect for others or creates a hostile working environment. That includes making crude comments or reinforcing gender stereotypes.

A proactive stance may require a change in basic mindset. “Most supervisors are reactionary,” says Ford. “They are not accustomed to working on creating an environment where if something inappropriate is said there is an opportunity to discuss what happened, why it is inappropriate, and then move on to improving behaviors.” Result? “Things get worse because management has issued an unspoken ‘okay’ to bad behavior.”

Beware fraternization

Supervisors need to understand the risks involved in blurring the line between business and personal relationships. “Managers and supervisors can have friendly relationships with subordinates, but they should not be friends with subordinates,” says McDonald. Failure to maintain professional distance, he says, can lead to situations that may not appear initially as harassment but could result in such charges down the road.

What are some signs of danger? “The subordinate may start to feel he or she can take liberties such as texting the manager after business hours about personal problems,” says McDonald. “Or the subordinate may ask for advice on relationships or financial issues, or ask to borrow money, or invite the supervisor to a social outing with a friend. These kinds of liberties can create situations that backfire on the manager.”

Backing off in such instances is a wise idea. And so is a reluctance to go one step further and engage in a dating relationship with a subordinate. (For more on this topic, see the sidebar, “Workplace dating: yes or no?”)

While a conscientious employer can go a long way toward creating a respectful workplace, it’s easy to let the ball drop in the rush of daily business. “Employers tend to make several common errors,” says Harkins. “One is not repeating training frequently enough. Sometimes they will do a large training session and then ignore the issue for five or ten years.”

A second mistake is not escalating complaints high enough in the chain of command. “Higher level people, including those in human resources or in the legal department for those businesses which have them, should review every reported incident.” Smaller organizations should have top executives handle the complaints.

A third mistake is giving a harasser too many chances. “Sometimes a second chance is in order,” says Harkins. “Perhaps an ordinarily well-behaved person commits an aberrational infraction, or there are some questions about proof.” Other times a complainant will ask that a person not be fired for a single infraction. “In such cases an employer might take other remedial action,” says Harkins. “But if there is a second incident of harassment the employer should move to termination.”

While every business wants to avoid the financial penalties resulting from sexual harassment, there’s more at stake than simply avoiding costly lawsuits. “People are often concerned about the legal liabilities for sexual harassment, and that aspect of the problem has certainly been making the headlines recently,” says Gregg. “But legal liability should not be what drives the topic. It should be the realization that a respectful workplace leads to higher profitability.”

Employees are more productive when they are not sidetracked by the need to protect themselves from sexual advances, says Gregg. “Create a respectful workplace not because the law makes you do it, but because it’s to the benefit of your organization and your employees.”

Philip Perry is a freelance writer based out of New York City.

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