How to mitigate #MeToo risks before you buy
In an era of heightened workplace harassment litigation, employers of all types, and especially those in the finance industry, must be proactive in addressing potential aggravating risk factors. Not only have we seen a litany of serious headlines regarding sexual harassment and the #MeToo Movement over the past year, but the U.S. Equal Employment Opportunity Commission’s filing priorities clearly reflect this trend. In 2018, the EEOC filed a total of 41 sexual harassment lawsuits and recovered $70 million through sexual harassment litigation, a five-year high on both fronts.
The dramatic increase in filings should be an eye-opener for businesses in an era when many thought the EEOC might be hitting the brakes. Instead, the EEOC is increasing its enforcement activity, with a particular focus on gender discrimination and sexual harassment. Additionally, while many headlines report only the settlement amounts in these cases, employers must also consider the burdensome costs of litigation and impact of negative press coverage. Now, more than ever, employers need to be on top of their game to avoid becoming the next target of EEOC-initiated litigation.
This careful approach particularly applies to private equity firms that are seeking to expand their portfolios. While the acquisition of a portfolio company may bring economic benefit, it comes alongside a new liability: should your portfolio company face legal action, you, the stakeholder, now share that liability and run the risk of being named as a Defendant in the lawsuit. Furthermore, given the nature of the finance industry, PE firms must proceed with even more caution in some aspects. Specifically, the multitude of client entertainment and offsite meetings can create a potentially dangerous situation when alcohol is involved. In addition, the massive company size often seen in finance may lead to a decentralized command structure.
Acknowledging today’s climate of amplified workplace risk and challenges posed in the finance industry, private equity firms need to not only consider the financial aspects of a portfolio addition, but also the potential risk from an angle of liability to litigation. Potential portfolio companies should be thoroughly vetted by multiple investigative parties prior to purchase.
Often times, it may be beneficial for in-house counsel to join forces with outside consultants in an effort to assess the status of a potential portfolio addition’s litigation risk. Specifically, PE firms would be wise to enroll assistance in completing an audit. An audit of this type should be conducted through sets of interviews, surveys, and objective analysis of company policy.
All employees should be analyzed during this process, including high-ranking company executives. A successful harassment audit would examine a company’s personnel, workplace policies, and history of legal exposure. Once completed, recommendations must be made to the PE firm as to whether the portfolio company’s addition would place the firm in a vulnerable position.
While each situation involves various surrounding circumstances, PE firms are generally best to avoid businesses with:
- Significantly limited or nonexistent policies on workplace conduct
- No comprehensive database of employee records
- An overly homogenous workforce
- Policies allowing alcohol consumption on company grounds
- Ongoing high-stakes litigation
- An irreversibly poor company culture
Should the potential portfolio company pass a workplace audit, private equity firms can move into the next stage of reducing litigation liability: proactive risk measures. As a new stakeholder in the portfolio business, PE firms can and should vigorously pursue the implementation of revised, forward-thinking policies and practices.
In terms of current portfolio companies, private equity firms may take a number of proactive steps to mitigate the risk of workplace harassment claims. For example, PE firms may:
Implement a “zero-tolerance” anti-harassment policy. Ensure that this essential step includes application to all levels of employees, and includes mention of harassment on the basis of other protected categories outside of sex (i.e. race, age, religion, etc.).
Sharpen and redistribute written policies. A thorough written policy includes definitions of inappropriate conduct, an anti-retaliation provision, and separate direction to leaders and managers. Written policies should be revisited annually and redistributed often. Workplace law is constantly changing (especially on the state level), and HR policies must consistently evolve with the law.
Consider new approaches in the hiring process. As the start of the employment process, bettering hiring practices will inevitably improve company culture. Employers should begin with observing how candidates interact with female employees during the interview process. Additionally, HR personnel can further reinforce commitment to anti-harassment and diversity through an opening interview statement.
Enhance employee training. Training is an integral aspect of proactive risk mitigation. Company training should apply to all employees and consist of direct training as well as bystander intervention training techniques. Moreover, companies with a vast leadership structure should consider separate training for management and executives.
Guarantee clear reporting channels and investigative procedures. An employer’s investigation process must be anonymous, clearly outlined in employee policies, and contain a number of possible reporting outlets. Examples of company reporting channels include: hotlines, open door options, Equal Employment Opportunity coordinators, a rapid response team, and various other HR structures.
Maintain comprehensive employee documentation. Businesses must keep thorough records on training, complaints, and disciplinary measures pursuant to the policy. Should your portfolio company end up facing litigation, comprehensive documentation may be an essential aspect to the company’s defense.
Private equity firms, as well as employers in general, must devote significant time and energy to implementing these proactive measures. Employment litigation is exceedingly expensive. Simply being sued is a losing proposition from an economic standpoint. Thus, the adage “If you are sued, you lose,” is especially true in the context of workplace harassment claims.