$500,000 to Shut Your Office Door… Is It Worth It?

by | Jul 30, 2019

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What is your greatest fear? This question is often asked of business leaders, executives, and owners of businesses — and it is answered with all kinds of stories. So, what is fear? Fear is a feeling induced by a perceived danger or threat that occurs in human beings and which causes a change in metabolic and organ functions and ultimately a change in behavior. It is what triggers the “fight-or-flight” response.

Some fears we do not experience until it is too late. Many times, we simply are unaware of our fears until they hit us right square in the face when we least expect it. And then we go into fight-or-flight mode. This is a physiological reaction that occurs in response to a perceived harmful event, attack, or threat to survival. It worked when we were cavemen when tigers and lions were the most to fear and could kill us at any moment. Today, many fears are not death threatening. However, many stories I hear from business leaders now are focused on the threats of employees. These can be life or death situations that require a fight-or-flight response.

Many business owners and entrepreneurs are recognizing that the State of California generally weighs in favoring employees. My discussion which follows is not intended to take sides on this issue. However, there is a reality and danger that every business faces and which has value being discussed and recognized from the standpoint of protecting our investments and assets. So, let me share the story that was the catalyst of these remarks.

The unbelievable story that resulted in a $500,000 expenditure   

There is a business owner that came to me and shared an unbelievable story of fear. Unbelievable, because it could have only unfolded in a drama on television or in a movie. More importantly, it could have happened to any one of us in a leadership or business ownership role. And it resulted in changing the life of the business owner and how he now conducts business. Here is how his story goes.

The business owner is a very successful entrepreneur with a manufacturing company that has tens of millions of gross revenues and millions of net profits. There is a great administrative team and over 200 employees that work in the plant and warehouse. He is a happily married man with two teenage children and is active in the community and philanthropic causes. He is your typical successful entrepreneur — well respected, visible in the community, and successful.

One day he is served with a lawsuit alleging sexual harassment by one of his factory workers that has been with the company for three years. The brief in the lawsuit goes on to state that the factory worker, a young lady in her late 20’s, had come to the owner several months earlier to complain about another factory worker. The owner closed the door to his office as he had done so many times before to maintain confidentiality and privacy, and to minimize the distractions coming from outside his private office. During this closed door session, which lasted about 45 minutes, the owner agreed to address the problem, which he immediately and personally handled within days of the conversation with the young lady.

Apparently, the young lady decided for reasons unknown to file a lawsuit against the owner for sexual harassment. She claimed that the owner made a pass at her in the closed door session (sexual advances), touched and fondled her, and sought from her sexual favors. All of which she stated she did not provide, but did acknowledge that she did not leave the office when it happened because she was afraid of being fired on the spot. She simply pushed him away, she said. He advised her that if she did not keep quiet, he would have her dismissed from her job. The description of the actions of the owner were so graphic in the lawsuit, that putting those descriptions into this blog would be embarrassing to many.

The business owner, with the advice of his attorney, determined that whether the allegations were true or not, if the allegations became public, it would have devasting consequences on the owner, his company, and the future success of the business… and more importantly, on his marriage and children.

It becomes clear that this was a “he said/she said” story. As the complaint moved through the legal process, settlement discussions unfolded. $500,000 was the amount sought in the lawsuit. The business owner did not want to go to court. While he had every confidence that his story would certainly hear well with the Court, the young lady’s attorney sought a jury trial. Now, the odds were dipped against the owner, resulting in his attorney highly recommending settlement. The case was settled for $500,000 and attorney’s fees, and the young lady moved on.

$500,000 for shutting the door to the owner’s own office. $500,000 to maintain privacy and confidentiality. $500,000 to keep it from causing further damage to the company and his personal life.  And, $500,000 to eliminate the stress and burden of going into court and defending himself in the public arena with the possibility of ultimately losing. This could have been devastating to the company and would have substantially affected the reputation of the owner.

Did the facts show proof that he sexually harassed the young lady? Absolutely not! It was a fabricated story. Was he an upstanding man? Yes, however, in our litigious business environment of today, the odds were against him in winning this kind of civil action.

So, what can we learn from this event? How do we need to adjust our habits and behaviors to minimize the risk of our employees and others making unsubstantiated claims that can gain traction? The deep pockets of our successful businesses are breeding grounds for employees to take advantage of these pots of gold.

From 1980 to today… we are in a different world!

In 1980, the Equal Employment Opportunity Commission (EEOC) issued regulations defining sexual harassment and stated it was a form of sex discrimination prohibited by the Civil Rights Act of 1964. While we saw many claims and prosecutions unfolding over time, today such claims and prosecutions have become a daily part of the evening news. It is common to see sexual harassment news events unfolding every day.

So, what’s the difference between then and now? The most significant difference is the technology of social media and the Internet. Today, news is not delayed by days or hours… it is instantaneous and more visible to greater audiences. In addition, employees have at their fingertips resources that allow them to design sophisticated strategies to attain self-interested outcomes and immediate gratification. Then there is the news of all of the sexual harassment discussion being shared in the open discussions room on social media. And finally, there are advocates and whistleblowers who have become the spokespersons and guards at the gate.

Some solutions to protect yourself

What can you do to protect yourself from potential unsubstantiated allegations being brought against you? Here are some simple steps which may reduce the possibility of some of these claims.

  • Liability Insurance

The financial value of claims and awards are significant in today’s courts. The International Risk Management Institute, Inc. (“IRMI”) says that Employment Practices Liability Insurance (“EPLI”) is a type of liability insurance covering wrongful acts arising from the employment processes. The most frequent types of claims covered under such policies include wrongful termination, discrimination, sexual harassment, and retaliation. In addition, the policies cover claims from a variety of other types of inappropriate workplace conduct, including (but not limited to) employment-related defamation, invasion of privacy, failure to promote, deprivation of a career opportunity, and negligent evaluation. In addition to providing directors and officers (D&O) and fiduciary liability insurance, management liability package policies afford the option to cover employment practices liability also.

Ray Markley, Founder and Owner of Shorepoint Insurance says:

“Risk management types of insurance professional are best suited to walk through the unique exposures each executive and his/her company has. EPLI policies can be modified to the circumstances. Class action means the one plaintiff may bring others into the complaint who have similar grievances with the same defendant. Defense costs are the costly risk here. Another exposure is government action from EEOC investigations. Such fines and penalties are another matter that EPLI may cover.”

He further says:

“In these kinds of sexual harassment cases we must remember, legal fees can run in excess of $100,000 per claim that legal counsel may incur for your defense. If trial is involved, then those costs may well double.”

The lesson here is to have Employment Practices Liability Insurance at as high a level as you can afford to provide the financial cushion to address sexual harassment allegations.

  • Shutting the door of your office

Consider NOT shutting the door to your office when you have private meetings with anyone. If you do shut the door, make sure that your office door is a glass door and there are windows so that others can see into the office. Maintain good lighting and stay visible to others outside the door by way of the window and door. And, let your secretary or assistant know that there is a meeting going on and that he/she is invited to look in from time to time. In essence, be visible!

  • Have a third party present

While there is a desire to keep 1-2-1 meetings private and confidential, it may be valuable to have a third party attend the meeting. At least it won’t be he-said/she-said, but rather they-said. Recognize that when you are in a closed room by yourself with another person, anything can happen or be fabricated. The many fantasy story lines that unfold in the racy and sensual business-related movies and television shows we see in the theater and on our home televisions, actually do happen in the business world.

  • Host one-on-one meetings in public places

When was the last time you had your private meeting in a public place? Nothing generally can happen in a public place. Try using a restaurant, hotel lobby, or simply a bench in a park where others can see you and the other person. In public places it is pretty difficult to get away with something without someone seeing it. And, fabrication of stories of unwanted sexual harassment is much less likely to take place, when the meeting is in a “public fishbowl.”

  • Voice tape or video all conversations when you are alone with someone in a room

I knew a CEO that had a red light above his desk. He informed everyone that when the red light was on that either voices were being recorded and/or video was being taken. No one ever was disrespectful or out of line when the red light was on. By the way, many times the red light was on and there was no recording of what was occurring. The mere fact that the red light was turned on warned everyone to be respectful.

  • Don’t drive your car with an employee without a third party

Private meetings can occur almost everywhere… even in your car! So, how often do you go out to lunch with an employee? How about driving to a meeting with an employee? Again, being alone with an employee in the tight space of a car and not having a third person with you can lead to he-said/she-said moments. While the likelihood is small, a simple unfortunate touch on the knee can be interpreted as a sexual harassment advance. A compliment mixed into your small talk while driving your car can be wrongly interpreted. So, the space of car is as dangerous as your office with a closed door.

  • Stay out of places alone with any person

A general rule is to simply stay out of places alone when you are with another person. This means with the opposite sex and with the same sex. In any situation, a sexual harassment complaint can be manifested. The smart person that has deep financial pockets never goes into a situation without being couscous, protected, and aware.

  • Be aware of what is happening when you are alone with someone

Most often when we are in situations, we are not lasered on what is going on. We certainly do not take notes or keep a record of what takes place. When a sexual complaint is filed, it could happen immediately after the time together or it can be delayed for days, weeks, or months. When we are made aware of the situation, we now have to remember what took place, how things unfolded, and what the chain of events were. Oftentimes our memory is not as good as that of the one who filed the complaint. So be aware of what is happening when you are alone with someone.

What is the solution? We have the protection of insurance, the conscious decision to not be alone with someone else, and the intention to stay aware and monitor every situation where an allegation could evolve from. And, we actually have the highest technology available to mankind to address most all of these situations… it is called the “smart telephone.” It is the Apple or the Samsung device that we have all become addicted to.

Now, whenever you are alone with someone in a closed office, a car, or even a public place that is intimate, turn on your recording button and tell the party you are recording everything that is going to be unfolding while you are with them. Do this very easy action from the moment you are there to the moment that you leave each other. An even more valuable option is simply turning the camera on and recording the entire time together. Get a small tabletop tripod stand, mount the camera on the stand, and do what you would normally do. When you are done recording the audio and/or video, download it to an external hard drive and maintain the content. You may never need to refer to it… but when you do, you are going to be so happy that this simple act of protection will keep you from spending thousands and maybe hundreds of thousands of dollars on an unsubstituted allegation.

Remember, that sexual harassment does not need to be between opposite sexes. It can easily unfold between same sex persons too. So, this discussion applies to any and all persons that meet in a private situation.

In today’s world of business, we may have to be diligent to define the risks and put in place the appropriate actions, behaviors, processes, and procedures. Maybe if we do, it will lead to us not having to pay $500,000 to shut the office door!

For more information contact Marshall Krupp, Peer Executive Boards at 714-624-4552 or marshall.krupp@peerexecutiveboards.com

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