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Harassers, empty your pockets and pay up! Including personal financial accountability for harassment in employment contracts – key considerations

employment contract

If an employee is found to have engaged in harassment in the workplace during their employment, the employer’s recourse is to impose disciplinary action including, in the most severe of harassment cases, termination for just cause. Termination is essentially the capital punishment of discipline in the employment law realm. However, what recourse is available to future employers of these “harassers”?

The case of John Lasseter

In January, Variety reported about the new position of John Lasseter, the former Pixar head of animation who was the subject of a workplace harassment complaints from Pixar staffers. Lasseter started a new gig with Skydance Media, which caused significant uproar in the entertainment community and, presumably, amongst Skydance employees. Lasseter apparently met with an outside legal team to address the allegations that he inappropriately touched or kissed former Pixar employees and provide a detailed account of any behaviour that was deemed unacceptable. If Lasseter is found to have lied to the lawyers, he will be terminated. In a letter to staff, Skydance Media CEO David Ellison stated:

“While we would never minimize anyone’s subjective views on behavior, we are confident after many substantive conversations with John [Lasseter], and as the investigation has affirmed, that his mistakes have been recognized,” …. “We are certain that John has learned valuable lessons and is ready to prove his capabilities as a leader and a colleague. And he has given his assurance that he will comport himself in a wholly professional manner that is the expectation of every Skydance colleague and partner.”

The contract

The employment contract with Lasseter contains provisions that make him financially responsible for legal claims involving sexual harassment. Variety reported that the provisions are said to include:

  • the requirement that Lasseter pay for legal issues arising from future misbehaviour; and
  • indemnify Skydance from any past misdeeds that had not come to their attention during their due diligence hiring process. 

The provisions are said to be “iron clad”.

Thoughts on hiring a publicly accused “harasser”

In the Lasseter situation, Skydance was hiring someone who had previously (and very publicly) been accused of harassment and so they wanted protection against any historical misdeeds that they didn’t know about or that he hadn’t disclosed. I can’t blame them. I would envisage such protection finding its way into a contract in the form of a warranty (in other words, the employee guarantees that they have disclosed everything in their past), and that breach of such warranty would have ramifications – especially since in Ontario under the Occupational Health and Safety Act employers need to ensure that they are maintaining a safe workplace. That’s straightforward language to include in a contract. However, for many employers, an employee’s previous “misdeeds” are not made public and so their focus would likely be forward looking in order to hold harassers accountable for future actions.

In my view, such forward looking provisions are more complex and in order for them to be properly included and enforceable in an employment contract there would need to be extremely well thought out and clear language in the contract.

The parties would have to turn their minds to at least the following concepts:

  1. Clear thresholds for payment and termination. The parties would have to address the definition of “harassment” for the purposes of triggering the monetary penalty. Would any harassment trigger the full penalty? Or, would there be varying degrees of defined harassment associated with varying degrees of penalty?

    From my perspective, if you have varying degrees of penalty for varying degrees of harassment, you run the risk that an employee may be prepared to engage in lower level harassing behaviour because they can tolerate the penalty – so, in order to properly deter the harasser, in my opinion, the penalty should be the same regardless of the level of harassment engaged in. Harassment is harassment and the penalty must be paid – period.
  2. Who determines if the employee has been engaged in “harassment”? There needs to be a determination that the employee did in fact engage in the harassment and so the issue is, who does that? Is it enough for the penalty to be triggered just because an allegation of harassment has been made? Or, would the penalty be engaged upon the determination by an investigator? By a judge? 

    From my perspective, the determination of whether harassment took place should be made after an investigation conducted by an independent third party and not merely upon receipt of a complaint: a complaint contains allegations; findings can only be made after independent review and assessment of the allegations and the evidence.

    Furthermore, the independent reviewer should be instructed by way of language in the contract as to what test they use to determine if harassment has taken place in order for the penalty to be triggered. Would the threshold be the civil test of balance of probabilities (in other words, more likely than not) or would the test used to impose monetary liability have to be “beyond a reasonable doubt”? 

    Certainly, if I’m the employee negotiating the contract, I’m going to want “beyond a reasonable doubt” but my employer may want “balance of probabilities” which is the lower threshold.
  3. What does the “penalty” amount cover? Is the harasser paying damages (and if they are, how are those damages going to be determined?), or is the harasser covering actual costs incurred including, for example, the investigator’s fees, legal expenses incurred by the employer in dealing with the harassment issues etc.? Also, another issue to consider is whether the penalty is triggered only if the investigator finds the allegations to be true or is there some form of penalty put in place to cover costs just because a harassment complaint has been filed? If the determination is that no harassment has taken place, does the company otherwise cover the costs?  What if the investigator/judge only finds some of the allegations to be true?

Undoubtedly, there are additional, situation-specific considerations that would go into the drafting of a contract that holds harassers monetarily accountable for their actions but as you can see there’s lots to think about. Making harassers personally pay for costs associated with their actions is, in my opinion, a very creative and principled approach to deterring the misbehaviour. This approach will require thoughtful and skillful drafting. It will also most certainly mean that the employer and prospective employee will spend quite a bit of time negotiating the employment contract terms. Employers should also keep in mind that just because they have inserted penalty provisions in their employment contract(s) those would not absolve them of their obligations to take other measures to ensure a safe workplace and to take appropriate steps in the workplace necessary to address findings of harassment – they can’t completely pass the buck.

By Patrizia Piccolo, Partner and Co-Founder

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Piccolo Heath LLP

Prominent Canadian lawyers Patrizia Piccolo and Jennifer Heath have come together as Piccolo Heath LLP, Canada’s newest employment law firm. With more than 30 years combined expertise, the firm was founded with the purpose of delivering outstanding legal counsel and dynamic, client-focused service. Piccolo Heath LLP is focused on guiding clients through the legal landscape to determine the best solutions to their unique issues. The firm is well-versed in current employment-related case law and statutes, but is also highly sensitive to the practical impact of the law on both employers and employees. Read more.
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