Sexual harassment as a form of legal wrong is defined in extensive caselaw that practitioners in the field can recite verbatim.
The problem is that all the refined nuances of this law turn on facts and circumstances, most of which depend on the word of the parties involved.
Lessons and risks to founders:
1. Absurd as it may seem (because it is natural that attachments may be formed by those working together), from the standpoint of protecting your stake in your venture, it should be a categorical rule for a founder never to have any form of sexual or romantic interaction with a co-worker in your venture and this applies especially if you are an officer or director of the company. Why? Because it is a certainty that you can be "set up" by the other party at any time after the company begins to prosper. Accusations can be made from any direction, real or fabricated. All they need is some fragment of verifiable support and you can be guaranteed that you will be on the hot seat for all allegations made, whether true or not.
2. Among the risks, say, if you are an officer, a VC-controlled board will almost certainly demand that you "resign" or, if you do not, will fire you. This may be because the board members do not want to fool with defending potentially indefensible facts or it may be that they simply want to consolidate investor control of the company by using the event as a reason to get rid of an otherwise dominant founder.
3. Which leads to a further risk: when your employment gets terminated in this way (or you are forced to resign), you will very typically forfeit all of your unvested stock and options, usually meaning that your founder stake will get cut to less than half of what you could have gotten upon earning it out. Of course, your value to the company may be such that a board will prefer to defend you and allow you to continue to vest but the point is that, through this set of events, you are vulnerable to the whims of whatever investors happen to control the board. This is a huge vulnerability and (from an economic standpoint) a risk never worth taking in exchange for a few moments of fun.
4. You will also be sued personally if a lawsuit ensues and that lawsuit will typically be ugly, both financially and emotionally. Of course, the company would get sued as well and this is the justification for your being terminated in the first place - your actions as an officer would be seen as irresponsible at best and you would have caused some serious harm to the company as a result of subjecting the company to the risks of a multi-million dollar lawsuit. Worse than that, the company may or may not choose to indemnify you for your personal costs in defending the lawsuit or in paying any resulting judgment. Even with an indemnity agreement in place, there is a strong incentive here for the company to claim that your conduct falls outside its parameters. You may win on this point in the end but, even if you do, who wants to have a huge liability threat looming over him for the duration of such a lawsuit.
5. Even if you manage to keep a half-decent financial stake, you can lose further once you are bounced from the company in this. For example, if the company later has a down round, resulting in a huge dilutive hit for all original shareholders, it may continue to incentivize its then current employees (including your co-founders) with a "refresh" on option grants so that they keep some form of parity with the new equity structure, but you will be left holding only a severely diluted equity piece in the end. Your apparently secure "vested" stake will be worth very little.
The above is based on real-world experiences that I have gone through with startups and the risks are very real. When this sort of thing happens, you will get no sympathy from those on whom you counted. In effect, you become tainted and those around you will either attack you or will keep distance in order to play safe. What is worse, common sense does not prevail in these situations. The company lawyers will work to ensure that all emphasis is placed on the worst legal risks imaginable, even if there is another side of the story. This may not be as true in Forture 1000 companies where the positions are more entrenched, but it is true in startups and is therefore murder for founders who get caught up in such a mess.
So, beware - when doing that international travel for conferences, when doing those late-night sessions with co-workers, etc., etc. - don't leave yourself in situations where you can be second-guessed. Remember too that the other party need not be some high-up person in the company and, indeed, usually is not. Keep it clean, then, for sure. But also keep the appearances clean.
If the above sounds too much like a lawyer's perspective, it's because it is. I realize that people place value on real-life affections that have nothing whatever to do with money and these may be enough to trump the legal risks. In my experience, though, in the startup context for founders, the mixture is too lethal in its consequences to make it worthwhile. That is a personal judgment for every founder to make. Do so with open eyes, however, for once you start down this road, you will be completely at the mercy of the person with whom you are flirting or whatever else you may be doing. Should it go bad, you will have little to fall back on.
Seconded (and it's nice to see 'grellas back on the board).
I hope it's not discourteous to emphasize one of George's points as a tl;dr:
> "don't leave yourself in situations where you can be second-guessed"
THAT'S THE KEY TAKEAWAY -- HERE ARE TWO RULES OF THUMB:
(1) Never make comments of an even-remotely sexual nature, joking or otherwise, to anyone, at any time.
In particular, don't so much as hint that a co-worker should go out with you.
You also want to be extremely careful about complimenting anyone's appearance.
Here's why:
* If there ever is a lawsuit, you will be asked, under oath, whether you ever made such comments.
* Moreover, people who work with you are likely to be asked, also under oath, whether they ever heard you make such comments.
* If the answer is yes, you did make such comments, then the jurors will be that much more likely to believe your accuser. Plaintiffs' lawyers know this and will take advantage of it every time.
* If you deny ever having made such comments, but other people said you did, then your credibility will take a serious and possibly-fatal hit --- not a happy event in a he-said / she-said situation.
(2) To the greatest extent possible, avoid being alone with anyone, of either sex and of any age, who might conceivably bring a sexual-harassment charge against you --- you want always to have a neutral witness who could testify in your favor.
>THAT'S THE KEY TAKEAWAY -- HERE ARE TWO RULES OF THUMB:
>(1) Never make comments of an even-remotely sexual nature, joking or otherwise, to anyone, at any time.
So much of humor and personality are bound up in sexuality that this is tantamount to saying, for many people, "Leave your personality at the door."
I also worry that this kind of principle, and especially your second principle, will lead to founders doing the easy thing and simply not hiring women.
Notice that I'm not arguing in favor of sexual harassment or not hiring women.
For an alternate cultural perspective, read Elaine Sciolino's La Seduction: How the French Play the Game of Life, which has a section on the workplace and love; in it she says this:
The game of the sexes also extends deep into the workplace. In the United States, the mildest playfulness during business hours and in a business setting is forbidden; in France, it is encouraged. In American corporations, men are told routinely that they cross the line when they compliment a female employee on the color of her dress or the style of her hair. In France, flirtation is part of the job.
...will lead to founders doing the easy thing and simply not hiring women.
Those who encourage baseless sexual harassment claims (and baseless lawsuits of all sorts) couldn't care less about the hiring of women. Those who do care about the hiring of women ought to consider making this issue a priority.
This is the only HR-related legal action I have ever seen succeed against a company I've worked at. It is so difficult to defend these things that professionally-run companies apparently just settle immediately. I think there's a reason both Grellas and D.C. are warning you all so strenuously about this problem.
These risks/warnings could apply to just about anything. A person could allege all manner of offensive, suggestive or coercive things, but none seem quite as effective as sexual harassment.
Am I wrong in the impression that allegations of sexual harassment specifically seem to be automatically taken quite seriously?
Over the course of my career, I've seen people accused of every kind of discrimination imaginable, intimidation, extortion, death threats and more, but nothing gets traction like sexual harassment.
It's probably because this law was established by the efforts of second wave feminism (1960s-1980s). Those other ones are far older and more fundamental social behavior laws that aren't enforced nearly as much.
I'm hypothesizing that second wave feminism is an issue dear to the current generation of judges and prosecutors, since they were young then, which is why it gains far more traction in the American court of law. Even reality TV Judge Judy references second wave feminism in some of her judgments.
> (2) To the greatest extent possible, avoid being alone with anyone, of either sex and of any age, who might conceivably bring a sexual-harassment charge against you
Wait. Don't ever be alone with anyone? Rough times.
If you're straight and the other person is the same sex and also straight, you're OK being alone together. If you're gay and with a person of the opposite sex, you're OK being alone together. Anything else is risky.
Anecdotally, I've found myself in situations which would easily qualify as sexual harassment more than once. Each situation would have been "OK" by your definitions, on the surface.
Trying to judge risk in terms of gender or apparent orientation seems a bit silly to me.
The problem is that all the refined nuances of this law turn on facts and circumstances, most of which depend on the word of the parties involved.
Lessons and risks to founders:
1. Absurd as it may seem (because it is natural that attachments may be formed by those working together), from the standpoint of protecting your stake in your venture, it should be a categorical rule for a founder never to have any form of sexual or romantic interaction with a co-worker in your venture and this applies especially if you are an officer or director of the company. Why? Because it is a certainty that you can be "set up" by the other party at any time after the company begins to prosper. Accusations can be made from any direction, real or fabricated. All they need is some fragment of verifiable support and you can be guaranteed that you will be on the hot seat for all allegations made, whether true or not.
2. Among the risks, say, if you are an officer, a VC-controlled board will almost certainly demand that you "resign" or, if you do not, will fire you. This may be because the board members do not want to fool with defending potentially indefensible facts or it may be that they simply want to consolidate investor control of the company by using the event as a reason to get rid of an otherwise dominant founder.
3. Which leads to a further risk: when your employment gets terminated in this way (or you are forced to resign), you will very typically forfeit all of your unvested stock and options, usually meaning that your founder stake will get cut to less than half of what you could have gotten upon earning it out. Of course, your value to the company may be such that a board will prefer to defend you and allow you to continue to vest but the point is that, through this set of events, you are vulnerable to the whims of whatever investors happen to control the board. This is a huge vulnerability and (from an economic standpoint) a risk never worth taking in exchange for a few moments of fun.
4. You will also be sued personally if a lawsuit ensues and that lawsuit will typically be ugly, both financially and emotionally. Of course, the company would get sued as well and this is the justification for your being terminated in the first place - your actions as an officer would be seen as irresponsible at best and you would have caused some serious harm to the company as a result of subjecting the company to the risks of a multi-million dollar lawsuit. Worse than that, the company may or may not choose to indemnify you for your personal costs in defending the lawsuit or in paying any resulting judgment. Even with an indemnity agreement in place, there is a strong incentive here for the company to claim that your conduct falls outside its parameters. You may win on this point in the end but, even if you do, who wants to have a huge liability threat looming over him for the duration of such a lawsuit.
5. Even if you manage to keep a half-decent financial stake, you can lose further once you are bounced from the company in this. For example, if the company later has a down round, resulting in a huge dilutive hit for all original shareholders, it may continue to incentivize its then current employees (including your co-founders) with a "refresh" on option grants so that they keep some form of parity with the new equity structure, but you will be left holding only a severely diluted equity piece in the end. Your apparently secure "vested" stake will be worth very little.
The above is based on real-world experiences that I have gone through with startups and the risks are very real. When this sort of thing happens, you will get no sympathy from those on whom you counted. In effect, you become tainted and those around you will either attack you or will keep distance in order to play safe. What is worse, common sense does not prevail in these situations. The company lawyers will work to ensure that all emphasis is placed on the worst legal risks imaginable, even if there is another side of the story. This may not be as true in Forture 1000 companies where the positions are more entrenched, but it is true in startups and is therefore murder for founders who get caught up in such a mess.
So, beware - when doing that international travel for conferences, when doing those late-night sessions with co-workers, etc., etc. - don't leave yourself in situations where you can be second-guessed. Remember too that the other party need not be some high-up person in the company and, indeed, usually is not. Keep it clean, then, for sure. But also keep the appearances clean.
If the above sounds too much like a lawyer's perspective, it's because it is. I realize that people place value on real-life affections that have nothing whatever to do with money and these may be enough to trump the legal risks. In my experience, though, in the startup context for founders, the mixture is too lethal in its consequences to make it worthwhile. That is a personal judgment for every founder to make. Do so with open eyes, however, for once you start down this road, you will be completely at the mercy of the person with whom you are flirting or whatever else you may be doing. Should it go bad, you will have little to fall back on.