The Customer is Not Always Right

What we can learn from the recent $250,000 sexual harassment verdict against Costco

Much to the surprise of many court-watchers, a federal jury in Illinois recently entered a verdict awarding $250,000 in compensatory damages to a former employee of Costco who sued the retail giant for sexual harassment.  This result was surprising because the employee never alleged she was harassed by a co-worker or manager.  Rather, her entire case was premised on sexual harassment from a store customer!

Evidence Revealed Costco Took Steps to Protect Plaintiff

The employee, whose case was brought by the EEOC, alleged that the customer stalked her, hugged her inappropriately, took pictures of her and made repeated unwelcome advances.  The woman testified that she reported this conduct to management but that their response was untimely and inadequate to make her feel safe.  In fact, evidence revealed that Costco waited over a year after the employee’s initial complaint to take any steps at protecting her. Ultimately, she obtained a restraining order against the customer on her own time and at her own expense.

In defense, Costco alleged that the customer’s conduct was not that serious.  Nonetheless, Costco claimed it did respond by, among other things, banning that customer from the particular Costco warehouse where the complainant was employed.  Additionally, Costco claimed the employee failed to take advantage of the protective measures it offered to her.  Finally, the company claimed that the employee was particularly sensitive to the alleged conduct which, while annoying, did not rise to the level of sexual harassment. The jury disagreed.

An eight-person jury unanimously sided with the EEOC, who argued that Costco failed to take adequate steps to prevent the harassment.  According to EEOC lawyers, this failure created a hostile work environment under Title VII of the Civil Rights Act of 1964. Title VII mandates that employers take reasonable steps to maintain a work environment that is free from harassment based on an employee’s sex.

Implications for Employers Across Multiple Industries

The decision is not the first of its kind.  Title VII’s requirement of a harassment-free workplace has been held to apply to conduct from customers and other outsiders previously.  What surprised many about this case, however, is that Costco was hit with this verdict after taking several steps to protect its employee.

One can only imagine the breadth of industries impacted by decisions like this.  Take, for example, the bar and restaurant industry.  It would be difficult to find a seasoned bartender who hasn’t experienced at least one regular customer who, while drinking, says and does things that would make a sailor blush.  If management were to eighty-six every regular patron who made unwelcome advances toward bartenders and waitstaff, profits would plummet.

Alternatively, consider professional environments such as law or accounting firms.  Employees are often called upon to entertain clients at dinner parties, sporting events and other social gatherings.  Those situations are rife with conditions (alcohol, late nights and one-on-one interactions among them) that could lead to unwelcome conduct from clients.  Can you imagine the financial implications if employers had to “fire” every client who acted inappropriately during a night of entertainment?

Is there anything employers can do to protect themselves from Costco’s fate?

Steps to Protect Your Company

While the Costco verdict is startling, it is an excellent reminder for employers to have adequate policies and procedures in place before problems arise.

1. Put Policies and Procedures in Writing.

Does your Employee Handbook include policies and procedures for employees to follow in the event they are harassed by a customer or client?  If not, it should.  Plaintiffs’ employment lawyers love nothing more than inadequate or out-of-date handbooks.  Moreover, take steps to ensure your employees are trained on policies and procedures relating to harassment from customers.  The more you do to educate employees before a problem occurs, the less likely you are to write a check when one of your customers acts inappropriately.

2. Investigate Immediately and Thoroughly.

If an employee reports to management or HR that a customer is engaging in harassing conduct, take the complaint seriously and act quickly.  Immediately initiate an investigation with the same vigor that you would if dealing with an internal sexual harassment complaint. Include discreet interviews with other employees who may have interacted with the same client. Talk to anyone who may have witnessed the offending conduct. Importantly, as you would with an internal situation, be sure to document every step of the process and have the employee acknowledge your efforts in writing.

3. Involve the Employee in Remediation Efforts.

In the past, some employers have reacted to complaints of harassment from customers by, for example, changing the complaining employee’s shift or work location so the employee is less likely to interact with the offending customer. This can be perceived by the employee as a sort of retaliation for her complaint.  To avoid this perception, involve the employee in coming up with the best solutions.  Again, be sure to document these efforts and the employee’s agreement to any resolution thoroughly.

4. Be Prepared to Lose a Customer.

Finally, if your investigation reveals that the employee’s complaint has merit, be prepared to “fire” that customer. Remember, one of the keys to the Costco case was the failure of the company to maintain a harassment-free environment.  If you don’t lose that customer, are you meeting your legal obligations?  Furthermore, management should consider whether the profit the company will realize from the offending customer outweighs the danger of lawsuits created by that customer.  Using Costco as an example, it is doubtful that one harasser would have yielded the company $250,000 in profits, not to mention the untold amounts of attorney fees Costco incurred in defending the case!  Unfortunately, the Costco case also instructs that this decision must be made quickly. Make sure your company’s HR Department is set up to act swiftly and engage confidently with senior management on these crucial decisions. Ultimately, many customers simply are not worth the risk.