#MeToo may hit erring execs right where it hurts -- in the paycheck

Employees of companies small and large have probably all attended at least one sexual harassment training session. Chances are they caught co-workers yawning, or struggled to stay awake themselves.

Harassment training is more or less required by the federal Equal Employment Opportunity Commission (EEOC) and, to some extent, by state law. But has it had any positive effect since it came into existence in 1964? 

If recent scandals involving executives such as Steve Wynn and Harvey Weinstein, politicians, movie stars and other celebrities are any indication, it hasn't worked well, if at all.

And the companies where it's happening are feeling the pain. The stock price of Wynn's gambling casino empire, Wynn Resorts (WYNN), fell from $200 a share to $163 due to a Jan. 26 Wall Street Journal story that reported "dozens of people recounted a pattern of sexual harassment" by the gambling mogul. The company, now facing regulatory hearings and securities fraud lawsuits, hasn't seen its shares recover much. Its board cut Wynn's salary cut by $1.5 million.

But that's a dime in the bucket at a slot machine for the 76-year-old Wynn. He's worth at least $3.4 billion, according to Forbes Magazine. If a company really wants to hit workplace harassers where it hurts, they should cut their benefits, bonuses and stock awards, said lawyer Stephen Harris, a partner in the employment law department at the firm of Paul Hastings.

Corporate boards could take an even tougher approach by using "claw-backs" to recoup previous compensation.

"There is case law permitting employers to claw back certain compensation even in the absence of a written agreement," Harris said. "The allegations in the Wynn matter, if true, include the type of conduct these claw-back policies are designed to address."

Of course, Wynn and other corporate heavy-hitters aren't likely to surrender their checkbooks, villas or other perks without a legal fight. There's also the thorny issue of proving the alleged harassment actually took place, particularly when it may have occurred years ago with no charges filed.

But the fallout from these high-profile scandals could lead to future employment contracts with executives, researchers, middle-management and, perhaps, even ordinary employees who recently got that $1,000 bonus. They would now include clauses that allow termination for sexual harassment and loss of accumulated benefits. 

Many of these claw-back clauses already exist in employment contracts, but are usually reserved for alleged miscreants who steal company secrets, join a competitor and use proprietary data, or steal clients.

Adding a sexual harassment clause to such contracts would change the playing field, particularly when it comes to those "dry and ineffective" anti-harassment training sessions. 

"Imagine a presentation that begins by highlighting the financial devastation that awaits those who harass" people in the workplace, Harris said.

The growth of the "#MeToo" movement has companies sensing danger in instances that until recently went totally unquestioned in the workplace, such as speaking to a subordinate in a sexist manner. Since such acts can be construed as harassment, employers will likely try to curb them before they escalate into full-blown accusations.

On the other side, an employee fired for alleged sexual harassment can also sue for wrongful termination or breach of contract if they feel the offense is minor, didn't happen at all or wasn't properly adjudicated the company.

This could be a minefield for Corporate America, particularly when The New York Times reports that legal settlement companies are "trawling" for clients who feel they've been sexually harassed – even using the hashtag #HarveyWeinstein. 

These types of companies traditionally bankroll accident and injury cases where cash is needed to fight for an insurance settlement. Since they aren't paid unless the client either receives a settlement or wins the case, they're a good weather vane for the success of these sexual harassment cases.

"There's a lot more interest in this because of the #MeToo movement," said Chief Actuary James Lynch of the Insurance Information Institute, which represents the property-casualty industry. Companies are actively seeking out insurers that offer Employment Practices Liability Insurance (EPLI) policies because they not only provide money for settlements that could snowball into the million-dollar range as high-profile cases lead to bigger payouts, but also high-powered lawyers to defend against them.  

"It's costly to defend them, not only for judgments, but just the defense cost alone, even if the case is dropped," said Michael Schraer, who handles employment practices for Chubb Limited, the largest publicly traded property-casualty insurer worldwide. 

Even though most cases don't go to court, there are still EEOC administrative proceedings, mediation and arbitration.

According to lawyers and insurance representatives like Schraer, for now there's only been a modest uptick in sexual harassment claims. But the #MeToo movement strengthened the spines of those who do file, so cases have become "more difficult to settle or negotiate now," he said.

Insurers say that corporate America's best defense is to play by the rulebook:

First, set up all proper legal procedures outlined in EEOC and state law. Second, tell employees exactly what they can and cannot do, such as unwanted touching and that "no means no." Make sure they know how to file a complaint with higher-ups who aren't likely to lose it in a drawer. Third, if a complaint is made, document everything and share it with the lawyers. 

Finally, a strategy that could soon become a regular part of executive contracts and the employee handbook would punish the alleged harasser by either cutting bonuses and stock options if the offense is minor, or firing him or her outright and trying to "claw-back" benefits they've already received.

So, if you are hired, or already on the job, watch for any change in your employment contract regarding harassment and claw-backs. And if you are forced to attend one of those boring sexual harassment seminars, it might be worth paying attention. 

  • Ed Leefeldt

    Ed Leefeldt is an award-winning investigative and business journalist who has worked for Reuters, Bloomberg and Dow Jones, and contributed to the Wall Street Journal and the New York Times. He is also the author of The Woman Who Rode the Wind, a novel about early flight.