Gender Issues

Sex-discrimination lawsuits are on the rise. Is your company at risk?
Inc. Magazine, April 2005
By Ted Rice

For large corporations, the news has been grim: Last July, Boeing agreed to pay as much as $72.5 million to settle a class-action lawsuit by female employees. That same month, Morgan Stanley paid $54 million to settle a similar suit.

Sex-discrimination suits against small companies don't make headlines but they are just as common. In fact, nearly half of all sex-discrimination charges -- running the gamut from sexual harassment to gender-related firing -- filed with the Equal Employment Opportunity Commission last year were aimed at firms with 200 or fewer employees. And claims could surge in the years ahead as more women gain confidence from high-profile cases in the news, according to Cari Dominguez, chairperson of the EEOC. Many female baby boomers are entering their 50s and are "looking to leave a legacy," Dominguez says. "Women are taking on the role of whistleblower."

Smaller companies are particularly vulnerable because they tend to have less structured atmospheres and are less likely to have formal sex-discrimination policies in place, Dominguez adds. "A lack of infrastructure and awareness of the issues can lead a small business to run afoul of the law," she warns.

Many female baby boomers are entering their 50s and are looking to leave a legacy. They're taking on the role of whistleblower.

Donna Salyers, founder and president of Donna Salyers's Fabulous Furs, a faux-fur retailer based in Covington, Ky., learned that lesson three years ago. Back then, the retailer -- which has 35 full-time employees, an online store, a retail shop in Covington, and celebrity clients such as longtime Cosmopolitan editor Helen Gurley Brown -- was struggling to recover from the economic impact of the 9/11 terrorist attacks. Then Salyers received more shocking news: The EEOC was suing Fabulous Furs for sexual harassment on behalf of four temporary employees in the company's distribution center who claimed that their supervisor made offensive remarks to them. The women, who had been let go after the company's busy season, also claimed that they were fired in retaliation for their complaints. Salyers soon found herself consumed with the lawsuit, watching as her legal bills skyrocketed to $100,000. Finally, last fall, she decided to settle. Her company, which admitted no wrongdoing in the case, paid $45,000 in damages to the plaintiffs and agreed to implement a new sexual-harassment policy. "Small businesses like ours aren't equipped to handle these claims," says Guy van Rooyen, CEO of Fabulous Furs. "It's like a smack in the face."

Salyers, who founded Fabulous Furs in 1989, is determined that this never happen again. Before the lawsuit, her company's sex-discrimination policy consisted of little more than the standard guidelines in an employee handbook. After the suit was filed, however, she hired a full-time human resources director to develop and review her company's employee policies. As part of the settlement, she also created a complaint hot line for workers and began holding annual sex-discrimination seminars for managers. By being up-front about what is and is not permissible, Salyers hopes to limit her company's exposure to any future claims.

The EEOC's Dominguez wishes more privately owned companies would follow suit. Until recently, the commission's efforts have been focused on large corporations. But now, smaller companies are the top priority, says Dominguez, who has launched an aggressive outreach program to educate small and midsize businesses. "They're the brave new world for us," she says. "That's where the growth opportunities are for the country's economy, but I see liability potential, as well."

Federal antidiscrimination laws apply to businesses with 15 or more employees, and state or local statutes often cover even smaller ones. In Chicago, for instance, companies with just a single employee can be sued for discrimination. To find out where your company stands, call the small-business liaison at your local EEOC field office (see www. eeoc.gov for a list of offices). The liaison will explain the law, provide educational materials for your staff, and even make free presentations at your workplace.

Next, spell out your firm's antiharassment and equal-opportunity policies in an employee handbook. Most companies follow a standard template, which can be found on the website of the Employment Law Information Network (www.elinfonet.com). In the handbook, tell employees whom to contact in the event of a complaint. Be sure to name someone besides the employee's direct manager, in case the issue involves that person. Merely providing the information in a handbook may not be enough, so follow Salyers's lead by posting your policy in areas frequented by employees, such as the kitchen or the restroom.

Bear in mind that guidelines written in legalese can be difficult to understand. For instance, an employee may realize that telling a dirty joke is a no-no. But he may not be aware that asking a female subordinate about her childcare arrangements is a bad idea. One comment isn't an actionable offense, and federal law does not prohibit simple teasing, offhand comments, or isolated incidents that aren't extremely serious. But there could be trouble if the conduct is frequent and severe enough to create a hostile work environment or results in a tangible employment action, such as firing or demotion. To help clarify the law for your staff, hire an employment lawyer to hold annual sex-discrimination seminars. Some trade associations and chambers of commerce also offer workshops for members.

Finally, be sure to keep a written record of your employees' shortcomings, advises Susan Stahlfeld, a partner at law firm Miller Nash's Seattle office. In a surprising number of cases, managers criticize employees verbally during reviews but give them high marks on written evaluations. Such evaluations can be critical to your company's defense if, say, an employee claims she was fired based solely on her sex. "It comes down to what you have in that person's file," Stahlfeld says.

Of course, even if you take every precaution, sex-discrimination complaints may arise. To prevent them from snowballing into lawsuits, investigate each one immediately. "Putting your head in the sand is never a good idea," says Jill Schwartz, of Jill S. Schwartz & Associates, an employment law firm in Winter Park, Fla. For instance, if a female worker questions why she's being paid $10,000 less than her male counterpart, go over performance reviews and take her tenure into consideration. If there's a reason other than gender for the pay difference, explain it to her. If not, fix the discrepancy. As the recent spate of high-profile lawsuits has proved, granting a raise will cost much less than going to court.

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