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Here What Happens When the Bad Guy Is the Boss

Posted Golden Skills

NBA ban on Sterling raises HR questions about owner misconduct

By Dana Wilkie April 30, 2014

It can be untenable for any HR manager: The company’s owner says or does something for which you’d fire most employees, but not only do you lack authority to show the owner the door, you’re not even sure how to approach him or her about the behavior. 

Lawsuits and government sanctions going back eight years indicate that Los Angeles Clippers owner Donald Sterling practiced housing and racial discrimination. Yet not until his racist remarks were caught on tape and splashed on TV screens worldwide did the National Basketball Association (NBA) on April 28, 2014, take decisive action—imposing on Sterling a lifetime ban from the NBA and a $2.5 million fine, and pledging to force Sterling to sell his team.

What ensues, most experts agree, could be a tangle of lawsuits and counter-lawsuits that would cost Sterling, the Clippers organization and the NBA dearly in attorney fees, time and, perhaps worst of all, a badly blemished reputation.

“It is always difficult to tell your boss that her or his behavior is inappropriate and that she or he should undergo training for it,” said Carolyn Rashby, special counsel at San Francisco-based Miller Law Group. “The best approach for the HR manager may be to remind the CEO or owner that attending training is in the company’s best interest, makes business sense and can limit its exposure to liability. It’s also worth noting that firing an HR manager for his or her attempts to ensure legal compliance could expose a company to a retaliation claim.” 

When It Gets Tricky

One of the most famous NBA workplace harassment cases involved Anucha Browne Sanders, a former women’s basketball player and New York Knicks executive, who won a sexual harassment lawsuit against Knicks general manager Isiah Thomas and Madison Square Garden (MSG), the corporation that owns the Knicks. The suit claimed that Thomas sexually harassed Browne Sanders and that she was fired after complaining about the harassment. In October 2007, a jury found Thomas and MSG liable for sexual harassment and ordered MSG to pay $11.6 million in punitive damages. The defendants prepared to appeal, but in December 2007, the lawsuit was settled for an unspecified amount. 

“She had claimed for years that she was subjected to sexual harassment, and she claimed she was told by NBA leadership that if she wanted to stay on, she needed to put up or shut up,” recalled David Lewis, who for two decades has trained workers about harassment as president of OperationsInc, an HR consulting firm in Norwalk, Conn. The Sterling case, he said, involves “absolutely the same sort of liability, but it’s 100 percent more difficult [to address] when the racist behavior is coming from the top, because it’s incredibly difficult to hold that individual accountable in most cases.” 

Legally, a company owner like Sterling could be held accountable under Title VII of the Civil Rights Act of 1964 for creating a hostile work environment. “Any of his employees can claim that by learning of his [racist] comments, views and beliefs, that they view the workplace as hostile,” Lewis said. Anti-bias laws can also create greater liability on the company’s part if an executive or owner is at fault, including liability for punitive damages. 

“In many jurisdictions, an employer is strictly liable under Title VII for racial or sexual harassment committed by a senior executive who is considered a proxy for the employer,” said Jordan Schwartz, a labor and employment associate in the D.C. office of Epstein Becker Green. “Once the owner becomes aware of the potential exposure from racially or sexually offensive remarks, I don’t believe it’s risky for an HR manager to suggest training or counseling. In fact, it would be riskier for the HR manager not to suggest training, and then have the company be hit with a lawsuit.” 

Above the Rules

Regardless, most experts interviewed for this story agreed that CEOs and company owners who enjoy great wealth, fame and power can start to believe they’re untouchable—above the law and above their own organization’s standards. In his 28 years in the industry, Lewis said he’s discovered that most CEOs fail to attend the same anti-discrimination and anti-harassment training that they require for their employees. 

“They might tell you that blocking out two and a half hours is just not feasible, but it just sends a terrible message,” Lewis said. 

When confronted by one or more employees with complaints about the owner’s behavior, those employees are typically paid off to keep quiet, Lewis said. 

“The standard practice is to exit the person, give them a separation agreement, and eliminate the person making the noise,” he said. “That happens far more often than any change in habits or behavior.” 

So what’s an ethical and conscientious HR professional to do? 

Aside from resigning or looking the other way, one approach is to make the owner understand the financial liability, perhaps by describing large awards juries have handed plaintiffs in cases involving CEO- or owner-perpetrated discrimination, preferably using examples from the owner’s industry. 

“I’m often called on by CEOs [to explain] a whole string of cases in the last 10 to 15 years where companies have paid in discrimination class-action suits—anywhere from $10 million to $500 million in fines, penalties and damages,” said Weldon Latham, chairman of Jackson Lewis P.C.’s corporate diversity counseling practice. “No matter how large the amount, it’s usually secondary to the cost of damaging your reputation. The biggest incentive for getting a client to recognize the need to prohibit top executives from engaging in discriminatory conduct is to tell them all the negative things that can happen if they don’t.” 

As an inducement, offer to break up harassment training into smaller chunks of time. Consider private training or sessions involving just a few top executives. And tailor the training to those executives “so they don’t feel that the training session is beneath or inapplicable to them,” Schwartz suggested. 

It’s always advisable, Lewis said, to involve the company’s attorneys in any discussion with executives about misconduct, in part to protect the HR manager against future retaliation or lawsuits. 

Some courts, however, have ruled that if an HR manager, in the normal course of his or her duties, relays to higher-ups an employee’s complaint about executive misconduct, the manager may be exempt from protection against retaliation. 

“In some situations, in some jurisdictions, it does become a risky proposition to seek to enforce the rules of the company against somebody in a position of power,” said Latham, who’s represented company heads who either perpetrated misconduct, or looked the other way when top employees did. 

Genie Out of the Bottle

Once the damage is done—for instance, the company owner is publicly humiliated by harassment or discrimination charges—it’s important to communicate with employees about the event, but to do so in a manner that doesn’t imply guilt. 

“You might send a message to employees saying, ‘We’re aware of issues involving the owner, we don’t condone such behavior, and the company believes in an environment free of hostility,’ ” Lewis advised. “You’re not implying that there’s validity [to the accusations].” 

For the same reason, HR departments should be careful when drafting correspondence addressing an executive’s bad behavior. 

“Let’s say the HR person has this e-mail they sent to Sterling telling him it’s imperative he attend [anti-discrimination] training and that he’s denied the training,” Lewis said. “That’s going to become discoverable in a lawsuit, and it could exponentially increase the amount of damages or liability.” 

An owner’s misconduct may be just the public relations crisis an HR manager can use to start making converts of other company executives. 

“The best thing an HR department can do is use this unfortunate circumstance as yet another reason to insist on having all company personnel undergo … training,” Schwartz said. “It’s most useful when the trainer is able to use real-world scenarios as examples. In this situation, a real-world scenario would have presented itself.” 

Said Latham: “In my area—the crisis area, where Mr. Sterling is right now—I assure you it’s a lot easier to do [preventive] things today than it was yesterday.” 

Dana Wilkie is an online editor/manager for SHRM. 

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