SEXUAL HARASSMENT COMMITTED BY CLIENTS, CONSULTANTS, AND
CONTRACTORS

By Roy Whitehead, Jr., and Ken Griffin

Female associates and employees at CPA firms are often required to work with clients, consultants, and contractors away from the relative tranquility of the firm's office. What is the firm's responsibility when potential sexual harassment questions arise and the perpetrator is a client or consultant? While this problem is not new, it raises several unique legal and ethical issues. What if, for example, the associate or employee claims she is being harassed by the CEO of a corporation that provides a major portion of the firm's billings? Is the accounting firm legally required to investigate and determine whether the client is sexually harassing the employee? If so, and the investigation confirms sexual harassment, what action must the firm take? Determining a correct response is difficult because improper conduct by nonemployees cannot be remedied by the same discipline and discharge procedures applicable to employees. Remedial action will also likely jeopardize the business relationship with the client, consultant, or independent contractor. CPA firm managers must, however, realize that there is a real possibility of firm liability if they fail to investigate in a timely fashion and act on the employee's claims. A proper response must be tailored to the specific facts of each case.

Fortunately, the Equal Employment Opportunity Commission (EEOC) and the Federal courts have provided some guidance for firm managers. In EEOC Decision 84-3 (Feb. 1984), the agency found that a restaurant owner was liable under Title VII Sexual Harassment for failing to take action to protect a waitress from harassment by a regular customer who was a personal friend of the owner. The agency chastised the owner for "failure to take any action to assure the waitress that he did not condone harassment of his employees and that she would not have to tolerate such harassment in the future." In the 1997 case of Folkerson v. Circus Enterprises, Inc. (107 F.3d 754), the court favored the EEOC approach by saying, "an employer may be liable for sexual harassment on the part of a patron where the employer either ratifies or acquiesces in the harassment by not taking immediate and/or corrective action."

Perhaps the most instructive case for accounting firm managers is Dornhecker v. Malibu Grand Prix Corp. (828 F.2d 307) involving a female employee who was required to travel with a highly regarded male consultant retained by her employer. On a business trip the consultant touched and fondled her and, on one occasion, dropped his pants. When the harassment was reported to Malibu's president, within 12 hours, he personally consoled the victim and assured her that the consultant would not be working with her in the future. The consultant's relationship with the corporation was not terminated because of his excellent record of service. The 5th Circuit Court of Appeals said that the corporation was shielded from liability because of its prompt and decisive action in dealing with the harassment. The employer apparently had a sexual harassment policy and carefully followed the policy. The case is also of interest to managers because the court clearly recognized that the business needs of the employer could be balanced against the seriousness of the nonemployee's conduct in determining an appropriate response. Another instructive case involved a medical clinic that failed to take remedial action for months while a contract physician sexually harassed one of the clinic's nurses. The Federal District Court held that corrective action against nonemployees must be timely and calculated to end the harassment (Otis v. Wyse, 1994 WL 566943).

What steps should the CPA manager take to avoid liability in non-employee cases? The foregoing guidance and cases suggest the following:

1) The firm should have a written sexual harassment policy that clearly spells out how to report sexual harassment;

2) The policy should provide for a swift investigation and effective corrective action;

3) The policy should provide specific guidance for cases involving nonemployees and must stress that inaction in nonemployee cases is not an appropriate response. An effective response may range from separating the employee from contact with the nonemployee to termination of the business relationship;

4) In appropriate cases, the manager can balance the seriousness of the harassment with the nonemployee's contribution to the firm's business needs in determining a proper response; and

5) Some firms may wish to reference their sexual harassment policy in
contracts with consultants and other nonemployees.

Ignoring the complaint or failure to take timely and effective action is not a viable legal option in these cases. For a discussion of the importance of a well-written sexual harassment policy in shielding employers from liability see, Whitehead, et al, "Sexual Harassment in the Office," The CPA Journal, pp. 42-45, February 1996. *

Roy Whitehead, Jr., JD, LLM, is an associate professor of business law, and Ken Griffin, DBA, a professor of information systems at the University of Central Arkansas.

Editor:

Michael Goldstein, CPA