Last week, companies around the world continued to find themselves uncomfortably in the spotlight as allegations of sexual harassment, pay inequity, and disparate treatment of women in the workplace remain in the news cycle.
Against this backdrop, a bipartisan effort that would make it easier for workers to sue employers over workplace sexual harassment and assault took center stage on Capitol Hill. If and when this legislation is passed, companies will likely see an increase in public allegations of workplace sexual misconduct and face the potentially severe legal, regulatory, and reputational risks that may follow.
Sexual Misconduct Bill
The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (H.R. 4445), which could come up for a House vote as early as this week, would prohibit the enforcement of third-party arbitration agreements signed before an alleged incident of sexual harassment or assault. Employers typically believe that the arbitration process is more efficient and less costly than litigation to resolve allegations. The bill’s sponsors counter that mandatory arbitration agreements discourage workers from coming forward to allege sexual harassment or assault and keep private the details of such allegations even when they are made.
Under the proposed legislation, workers would be free to sue their employers for workplace sexual misconduct, rather than arbitrate, which would pave the way for workers to air their grievances in a public setting. If the measure passes the House, a companion Senate bill (S. 2342) reportedly has support from at least 10 Republican members. The bill is therefore poised to clear the procedural barrier that has blocked several labor bills recently advanced by the Democratic-controlled House.
Why This Matters for Companies and Board Members
As the past several years have shown, allegations of sexual misconduct in the workplace can have a severe impact on a company’s business. If not managed swiftly and fairly, these allegations can lead to regulatory interest and a range of follow-on litigation, including by activist investors who may act if they believe that corporate culture has contributed to the atmosphere in which the alleged misconduct occurred. It is also important to note the extraordinary reputational risk that often accompanies the mere filing of public allegations of this nature.
Company Boards and C-suite executives play an increasingly significant role in defining (and protecting) the culture of their organization. There are many proactive steps a company can consider taking before the company is faced with an allegation of harassment, including:
- Conducting a comprehensive and independent audit of previous allegations (if any), through which the company can start to better understand it’s history of handling sexual harassment claims. In order to protect privilege, such an audit should be conducted by and/or directed by counsel.
- Developing and publicizing clear reporting channels for allegations of sexual harassment, and ensuring that employees have access and a variety of ways to report their concerns.
- Creating an objective, fair, and respectful plan for investigating and adjudicating allegations when they do arise.
- Developing and rolling out robust training to employees at all levels of the company. To be more impactful, this training should ideally include examples tailored to the relevant industry and existing culture of the organization.
- Designating a senior employee at the company to report directly to the Board on sexual harassment matters, which can help encourage active Board engagement and demonstrate transparency at the highest levels of the organization.
- Creating a rubric for when and how specific allegations are reported to the Board, including cases where the allegations are serious, pervasive, or implicate senior members of the company’s leadership.
Companies that are already faced with an allegation of misconduct must act quickly to develop facts, determine credibility, and reach independent and objective findings. In highly sensitive cases, companies should consider engaging qualified and independent outside counsel to lead an investigation of the allegations. Just as importantly, if an investigation substantiates the alleged misconduct, the company must be prepared to act objectively, responsibly, and decisively.
Now, more than ever, a company’s response to sexual harassment and related allegations requires careful handling. Freshfields’ Workplace Misconduct Investigations team has the experience and expertise necessary to help clients navigate these risks to effectively investigate and respond to these sensitive misconduct allegations.