Jeweler’s Handling of Employee Complaints Far From Sterling

Jeweler’s Handling of Employee Complaints Far From Sterling

By:  Ann Fromholz
Originally published by Law360 on April 3, 2017.

Sterling Jewelers, the parent company of Jared the Galleria of Jewelry and Kay Jewelers, recently saw its image tarnished after it was revealed that hundreds of current and former employees are waging a class action lawsuit alleging they were routinely groped and encouraged to have sex with their bosses.

The all-too-familiar allegations provide a golden example not only of how not to treat employees, but also of how not to handle their complaints.

Let’s scrutinize what went wrong and how the company might have better managed the grievances.

The employees allege men were favored over women for promotions, and that women were paid less than less-qualified men. The case, now in arbitration, has been pending since 2008 but recently made the news after plaintiffs’ lawyers made public hundreds of pages of declarations from former employees.

In these declarations, employees allege rampant sexual conduct at managers’ meetings and by managers – including senior management – in other settings.  Some claim that employees were pressured to have sex with their managers. Also among the claims by the former employees in the declarations are assertions that employees complained about the discrimination and harassment, but the company took no action.  Some employees allege that, after they complained, they were subjected to retaliation, disciplined or fired.

The company denies the plaintiffs’ allegations and continues to defend the case vigorously.

Although the case is in arbitration, and much of the information therefore will remain confidential, there are nonetheless lessons to be learned from the case for employers who hope to avoid similar litigation, large or small.  It is imperative that, when an employer knows of a potential violation of its policies – such as its policies against harassment, discrimination, or retaliation – it must act quickly.  Not only will this help stave off litigation by solving many problems as they arise, it also is required by California law.

The April 1, 2016, amendments to California’s Fair Employment and Housing Act provide that a company’s policy against discrimination and harassment must: (1) allow employees to report to someone other than a direct supervisor; (2) instruct supervisors to report all complaints; (3) state that all complaints will be followed by a fair, complete and timely investigation; (4) state that the employer will maintain confidentiality to the extent possible; (5) state that remedial action will be taken if any misconduct is found; and (6) state that employees will not be retaliated against for complaining or participating in an investigation.

These requirements are not limited to “formal complaints” by employees.  A supervisor must report – and an employer must investigate – when the supervisor sees or hears about possible harassment or discrimination.  If the company fails to begin an investigation when it is on notice of possible harassment or discrimination, even without a specific complaint from an employee, it is very likely that the employer will be vulnerable to a complaint of failure to investigate the claim, among other problems.

If and when an employee, as many in the Sterling Jewelry case allege they did, complains of harassment and discrimination, the company must investigate promptly.  The declarations also assert that Sterling Jewelry knew about the alleged harassment and discrimination, even without any employee complaints, because managers participated in the objectionable activity.  Therefore, the declarations indicate that the company was put on notice of the alleged harassment and discrimination in two different ways.

The first thing the company should do is gather sufficient information to understand the scope of the issue.  The Sterling Jewelers employee declarations indicate that they gave their supervisors sufficient information to allow the company to understand the basic parameters of the issues.  With that information, a company can determine how best to investigate.

Once the company knows the nature and scope of the issue, the company’s next step should be to decide on an investigation plan and determine who will conduct the investigation.  In some cases, it makes good sense to assign the investigation to the company’s human resources department.  However, when members of senior management are involved, or there is an allegedly systemic problem, both of which allegedly were true at Sterling Jewelers, the human resources department is not the best investigator.  In fact, the investigation may reveal that human resources is part of the problem.

In cases where senior management is involved in the alleged wrongdoing, where a systemic problem is alleged, or the alleged facts otherwise preclude internal investigators from handling the matter, it makes sense to retain an outside investigator or law firm.  The investigator must be perceived, both by the employees who will be witnesses and by a possible future jury, as independent and impartial.  The investigator must establish trust with the employee witnesses and ensure that the employees are comfortable talking openly and fully with the investigator.  Very often, employees fear that they will face retaliation for telling the truth in an investigation.  Many Sterling Jewelers employees allege that they feared, or were subjected to, retaliation for making complaints about the alleged harassment and discrimination.  If the employees do not believe that the company’s assurances of no retaliation will be enforced, it will chill their willingness to complain or participate.  Likewise, if employees believe that the investigator is too close to the company’s management and will not conduct a fair and impartial investigation, employees may not speak truthfully, which will in turn compromise the integrity and usefulness of the investigative process.

When the investigation is complete, and the investigator has reached his or her conclusions, the company must take seriously its obligation to take corrective action to ensure that the workplace is safe and free from harassment and discrimination.  The company also must take action that will ensure that the inappropriate conduct does not recur.  Without these corrective steps, an investigation is meaningless and, in fact, may turn into a liability for an employer.

If the employer receives an investigation report that finds wrongdoing, but fails to take action, a plaintiff’s lawyer will have superb ammunition to support her client’s claims that the company knowingly permitted the harassment and discrimination to occur.

We likely will never know whether a thorough and competent investigation could have prevented or minimized the litigation against Sterling Jewelers.  Other employers, however, can learn from the Sterling Jewelers situation, investigate promptly, and make their workplaces more compliant with employment laws and company policies.

Ann Fromholz, a Workplace Investigation Attorney, can be reached at ann@lawthatworks.com.