A powerful Hollywood mogul. A high-profile television news host. A well-known actor. A sitting U.S. Senator. From celebrities to politicians, they began to fall. It started with a few voices speaking up and has cascaded into an avalanche of sexual harassment and misconduct charges that has continued well into 2018. While many of the sexual harassment charges leveled in the #MeToo movement so far have been against household names and powerful elites, there is a sense of both fear and anticipation that similar allegations are coming to corporate America. It is a fear well-placed—tales of sexual harassment in the workplace have always been plentiful.
In 1996, 23 female employees sued Smith Barney, claiming sexual harassment and pay discrimination. More than 2,000 women joined the so-called “boom boom room” suit, which was named for the company’s practice of hiring strippers to celebrate the birthdays of male employees. The settlement came to $150 million.
Insurance Coverage for Sexual Misconduct Claims
Sexual misconduct by a company executive or employee can result in a wide variety of legal claims against the company itself. Because no single insurance policy will provide coverage for every type of claim that may result from misconduct allegations, policyholders should look carefully at these four coverages. Read more in Insurance Coverage for Sexual Misconduct Claims.
In 2011, it was UBS Financial Services under fire. A former sales assistant sued the company after being sexually harassed by a supervisor. The suit alleged that the woman was then fired after complaining. The jury awarded her nearly $10.6 million.
In 2012, one of the largest payouts to a single claimant was made to a physician’s assistant who endured repeated demands for sex from the doctors she worked with, including one doctor who allegedly stuck her with a needle and called her stupid. A jury awarded her $168 million.
Women are not the only victims of sexual misconduct. Actor Terry Crews recently revealed that he had been the victim of sexual assault by a high-powered Hollywood agent. In 1999, a male assistant manager at a New Jersey grocery store charged that a female assistant manager made unwanted sexual comments to him, touched him inappropriately, and flashed body parts at him while on the job. In a Time article in May 2017, journalist Josh Levs recounted being sexually harassed by a female supervisor on a project who drew photos of what she guessed his anatomy looked like and regularly pressured him for sex.
Harassment by the Numbers
It is difficult to determine how often sexual harassment occurs in the workplace. Most claims are brought privately and many settlements require non-disclosure. In a recent study conducted by Cosmopolitan, 81% of the more than 2,200 women surveyed had been verbally sexually harassed at work, 44% said they encountered unwanted touching and sexual advances, and 25% have received lewd texts or emails. Of those, only 29% reported it.
The Equal Employment Opportunity Commission (EEOC) defines harassment as conduct that is “severe or pervasive enough to create a work environment that a reasonable person would consider intimidating, hostile or abusive.” In 2016, employees filed 12,860 charges of sexual harassment against employers with the agency. Of those, the EEOC settled 9.4% of the cases (698) to the tune of $40.7 million.
Now that the current climate offers a more receptive environment for victims to tell their stories, companies can expect even more reports. Indeed, Jennifer Sandberg, partner at employment law firm Fisher Phillips, has already noted an uptick in the number of calls from employers regarding sexual harassment claims.
Despite the progress in anti-discrimination laws and the clear cost of non-compliance, many companies are missing the mark on sexual harassment awareness and prevention. “Companies don’t seem to be addressing it adequately or are not aware of the toxic environment that is being created today,” said Loretta Worters, an insurance exert formerly with the Insurance Information Institute. “It’s pervasive in every industry, including insurance.”
Lance Ewing, executive vice president of global risk management and client services at Cotton Holdings, agreed. “No company is immune. If you have human beings working for you, you’re not immune.”
Every corporation has its own cultural rhythm and pace, Ewing said, and within those cultures, the moral compass appears to be shifting “Even in the high-profile cases coming out now, people are saying what was acceptable then is not acceptable now,” he said.
Open Door to Litigation
Knowing about the problem and doing something about it are two different things, however, and companies often increase their risks by ignoring bad behavior, Sandberg said. In larger corporations, this could lead to costly class action suits. In smaller, privately-owned companies, cases can be further complicated as the offender may be the head of the company. With no one to report misconduct to, there is little recourse for employees but to sue, she said.
Another issue is that, too often, companies treat harassment reports the risk as a one-off issue. This is a mistake. “You can’t put up a poster and put on a one-day training session and think you’re done for the year,” Ewing said. He advocates for a continual process that becomes an integral part of human resources and risk management practice.
Companies are also leaving themselves exposed to risk by not updating policies and procedures to address harassment of all kinds. “Having a policy that only addresses sexual harassment or having no harassment policy is a problem,” Sandberg said, because the policy could be too narrow. Instead, she recommended crafting a thorough policy that covers all types of harassment.
“Companies leave themselves open to legal action by not having the proper HR procedures in place,” Worters said. “This is particularly true for small companies that may not even have an employee handbook. In light of what has happened this year, companies, both large and small, need to be ever more aware of their vulnerabilities.”
Policies should also take into account potential reporting difficulties. “Another mistake companies make is having a policy that tells employees to report incidents to their immediate manager,” Sandberg said. “Ninety percent of the time, it is the manager who is the problem.” She recommended that policies instruct employees to direct complaints to the human resources department or a high-level executive.
What companies absolutely cannot do is neglect to take disciplinary action. “Many companies overlook inappropriate behavior with a slap of the hand, without a paper trail,” Worters said. “This doesn’t help their cause. Allegations of sexual harassment affect a company’s bottom line directly through litigation and settlement costs and indirectly through redirection of management attention, reduction in employee morale and loss of shareholder confidence.”
Addressing Harassment Openly
Perhaps that threat to the bottom line is why some companies are proactively addressing sexual harassment. Birgit Marie Liodden, director of Nor-Shipping, a Norwegian maritime trade fair, stunned the industry in November 2017 when she penned an open letter warning of the problems of sexual harassment within the maritime industry. Liodden shared a number of instances in which she was the victim of such behavior and called for the maritime industry to openly discuss sexual harassment within their organizations. “Start discussing this topic within your organization and network to find out if you need to change the company culture,” she wrote in an article in Splash 24/7, an industry trade publication.
Organizations must treat sexual harassment and misconduct as seriously as they do other risks. Companies, especially larger corporations, have the law of large numbers litigation. “You take a 60,000-employee company or a 60-person company—all of them have the potential exposure,” Ewing said. But the larger the company, the larger a problem can grow.
Audits should be a routine part of the employment practices component of the business, he said. Companies should audit on a monthly basis to review and evaluate policies and address any situations as they arise. “We audit our financial books and policies and procedures all the time because we have Sarbanes-Oxley. Why wouldn’t we audit from an employment practices liability standpoint?” he said. “Instead, we believe in our beautiful policies and procedures and we toddle off to the courtroom.”
An audit of those policies could not only cement a defense, but go a long way toward helping both companies and victims resolve issues without litigation. Part of that means revamping how these claims are addressed. Sandberg believes the first step in the process should be designating who employees can report situations to.
The second step is to foster a culture of awareness. Companies need to go beyond employee training and put out annual statements on their harassment policy. “That action reiterates the company’s commitment to a safe work environment,” she said.
Another way to help prevent problems is to look for problematic behavior patterns. “Don’t look for incidents,” Ewing said. “You’re looking for an individual or individuals who continually have a pattern of issues in the workplace, and sometimes outside the workplace.” He suggested reviewing social media accounts, if allowed, to see if the individual’s behavior outside of work could suggest a problem within the workplace.
Ensuring Proper Enforcement
When a sexual misconduct claim arises, a company’s policy is critical to how successful the employer will be at addressing it. “Such a policy is explicitly recommended by federal regulations and, to be effective, should contain a definition of sexual harassment and harassment; examples of sexual harassment or harassment; a statement that sexual harassment or harassment of any kind is prohibited by the company and will not be tolerated; information on how claims are investigated; a statement that retaliatory action will not be tolerated; and a statement that corrective action will be taken,” Worters said.
Failure to adopt a sexual harassment policy could be detrimental to the employer in any investigation or litigation. “The absence of such a policy could be used as evidence that a harassing employee had apparent authority to engage in his or her misconduct, a finding that could trigger employer liability,” she said.
Once the policies are in place, companies should determine what else is needed to both prevent and respond to sexual harassment. The first step for risk managers should be to go back as far as possible and review the hiring process. By teaming with human resources, risk management can get a better sense of the application and screening processes. “The problem starts when human resources hires the wrong person,” he said. “That’s what plaintiff’s lawyers are going to look at. Do you have a history of hiring these types of people?”
Risk management should also keep a watchful eye on the culture in their organizations and not be afraid to push for changes. “Sometimes it’s okay to pull a couple of weeds,” Ewing said. “But if they keep growing back, there’s a problem with the soil.”
Enforcement does not need to be complicated. “The right corrective action is whatever it takes to make it stop,” Sandberg said. “Get expert help and get it early on. Get the right person with the experience to help you out.”
Overall, organizations need to give employees avenues through which they can voice concerns and feel like they are being taken seriously. “If you experience something, say something,” Ewing said. “It’s not something to be tolerated like a festering wound.”