Dispute.Litigating sexual harassment claim

     Under federal law, an employer can be held liable to an employee for sexual harassment of that employee by another employee.  In considering this problem you do not need to know what constitutes sexual harassment.

     Lotech is an employer that enters five-year written contracts with many of its middle managers. Two years ago it entered such contracts with Bill Malloy ("Malloy") and Jason Swenson ("Swenson"). The contracts signed by Malloy and Swenson each included the following paragraph:

     22. You shall be bound by the terms of the Lotech Employee Handbook.

     Lotech gave Malloy and Swenson a copy of the Lotech Employee Handbook to read before they signed contracts with Lotech, but neither of them read the Handbook before or after signing the employment contract.  The Lotech Employee Handbook includes the following provision:

     H.53. Romantic relationships between employees, or the termination of such relationships, often impair productivity. The initiation of romantic relationships may also expose Lotech to claims of sexual harassment under federal law. Accordingly,  romantic relationships between employees are strongly discouraged. Should such a romantic relationship develop between an employee and another employee of the opposite sex, continued employment with Lotech is conditioned upon the employee’s additional agreement to terms relating to claims of sexual harassment. 

     About a year ago, Malloy and Swenson, both male, became romantically involved.  When their relationship became known, they met separately with the manager of the Lotech Personnel Department at the manager’s request. The personnel manager told each of them that Lotech would dismiss them from employment unless they signed an agreement that stated:

     R.1. I have become romantically involved with another employee of Lotech. If I assert a claim of sexual harassment against Lotech on account of the behavior of that employee, I shall pursue that claim exclusively through binding arbitration by JAMS/ENDISPUTE in accordance with its arbitration rules and procedures.

     R.2. In the event that I lose any claim referred to in paragraph R.1., I shall reimburse Lotech for its reasonable attorneys’ fees incurred in defending against my claim.

     R.3. Lotech has advised me that I should consider reviewing this agreement with an attorney prior to deciding whether to sign it.

     At his meeting with the personnel manager, Swenson told the personnel manager that he was inclined to sign but wanted a little time to think about it.

     At his meeting with the personnel manager, Malloy expressed reluctance to sign the agreement. He told the personnel manager that Lotech had no reason to be concerned about a sexual harassment claim by either Malloy or Swenson. He also questioned whether Lotech could even be liable for sexual harassment in a case where both employees were the same gender. In response, the personnel manager told Malloy that the federal law against sexual harassment in the workplace would make an employer liable for the acts of its employees even where the alleged victim was the same gender as the alleged harasser. The personnel manager said this based on some comments that he had overheard at a cocktail party during a recent conference of human resource managers.  At the time of the cocktail party, and at the time of the meeting with Malloy, the Supreme Court of the United States had under submission the question of whether the federal law against sexual harassment in the workplace applied to situations in which the victim and the harasser were of the same gender. The question had divided the circuits and at the time there was no circuit authority on point in the circuit in which claims against Lotech would be brought.

     Without signing the new agreement, Malloy took it home to think it over and he discussed the agreement with Swenson. Malloy relayed to Swenson the substance of Malloy’s conversation with the personnel manager. Although both had been advised by the personnel manager to consult an attorney before signing the agreement, neither did so because each was on a tight budget and did not want to spend the money to hire an attorney. After their conversation with one another, each signed the agreement and returned it to the personnel manager.

     Six months later, Swenson terminated his relationship with Malloy. By that time, the Supreme Court had decided that federal law did apply to claims of sexual harassment made by one person against another person of the same gender. Oncale v. Sundowner Offshore Services, Inc., 523 U.S. 75 (1998).  Swenson visited you for legal advice because he claims that his relationship with Malloy had been precipitated by Malloy's sexual harassment of Swenson.

     Advise Swenson about whether a claim of sexual harassment against Lotech must be resolved through arbitration with JAMS/ENDISPUTE and whether he would be liable to Lotech for its attorneys' fees in the event that an arbitrator or judge ruled in favor of Lotech. Do not discuss whether the agreement to arbitrate and to pay Lotech’s attorneys’ fees would violate public policy.