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A New Headache for California Employers

California entrepreneurs, already struggling with skyrocketing worker's compensation and liability-insurance premiums, now face another financial headache: Potential liability for sexual harassment that is committed by customers or clients (see BW Online, 9/6/03, "Health Care: California's Next Freakout?").

"While employers are already potentially liable for such harassment under federal law, plaintiffs have largely avoided suing under federal law so as to prevent a defendant employer from removing the action to federal court to take advantage of court procedures perceived by many as being more 'employer-friendly,'" says John English, an attorney in the San Diego office of Sheppard Mullin Richter & Hampton.

COMING AND GOING. Under a new law, however, employers may now be liable under California state law for sexual harassment by customers or clients if employers -- or their agents or supervisors -- knew or should have known of the harassment and failed to take immediate action to stop it, English says.

The statute states that "the extent of the employer's control and any other legal responsibility which the employer may have with respect to the conduct of those non-employees shall be considered" when determining whether an employer has taken "all reasonable steps to prevent harassment from occurring." Unfortunately, this gives employers little guidance on what exactly constitutes harassment and what they should do about it in order to comply with the law.

Additionally, employers who act decisively to prevent real or perceived harassment by customers may potentially be liable for their actions. How so? Consider this example: If an employee complains about harassment from a customer and the employer bars that customer from returning to his establishment, the customer may well perceive that he is actually being denied access due to race, national origin, sex, disability, or other characteristic covered by antidiscrimination law.

THE DAVIS LEGACY. Although it may be some time before there is guidance from the courts on this new law, employers should review their policies and procedures to insure that they have a clear anti-harassment policy in place, English advises. They should also review with their employees the procedure for making complaints about potential harassment. Additionally, employers should ensure that managers are aware of their new expanded duties to respond to employees' complaints of harassment by customers.

The legislation imposing liability on employers was signed into law in October by outgoing-Gov. Gray Davis. His replacement, Arnold Schwarzenegger, strongly empathized with the hardships of California's small-business community during his campaign. So far, however, he hasn't promised to give the new legislation the "terminator" treatment. By Karen E. Klein in Los Angeles.

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