Keeping up with the (David) Joneses

What can employers learn from the David Jones sexual harassment case?

Now that the dust has settled, what lessons can employers learn from the way that the David Jones case was brought and the way that the case played out? Some commentators have said that the David Jones case changes everything; some have said that it changes nothing. We think there is truth in both views, as these lessons show.

Lesson 1 – Once a harassment claim becomes a court case, retaining control of the process is easier said than done

A lot can happen in four months.

On 18 October 2010, five terse lines in an ASX release from David Jones revealed that a settlement had been reached in relation to proceedings brought by Ms Fraser-Kirk in the amount of “$850,000 inclusive of all legal and other costs and expenses”. In the intervening four months, more than one media outlet described the proceedings which were commenced by Ms Fraser-Kirk as having become “a circus”, although as it was the media attention which fuelled the circus performance, there is some irony in that description.

As media interest increased, both Ms Fraser-Kirk and David Jones battled to control the media coverage. Neither succeeded in doing so. If an employer wants to improve the chances of controlling the resolution of a complaint, trying to resolve the matter before it goes to court (which may mean agreeing to take part in alternative dispute resolution processes) is a key part of achieving that aim.

Lesson 2 – Even if damages are small, damage to the brand might be large

The damages awarded in sexual harassment cases are generally modest, and will usually take the form of general damages (for the fact of the harassment, and the hurt, humiliation and stress that the complainant has suffered) and damages for economic loss (usually for any period of unemployment the complainant has suffered). If a complainant is very well paid, and has an extended period of unemployment (for example, if the harassment has caused lasting psychiatric consequences) then damages can be significant. However, such cases are comparatively rare.

In the David Jones case, even if all of the conduct alleged against Mr McInnes was established, the damages awarded are unlikely (based on what is publicly known about the claim) to have been anything like $850,000. Certainly, there is no prospect that $37 million (or any amount anywhere near that amount) would have been awarded in so-called “punitive damages”. However, the claim for $37 million provided a good headline. What does this mean for damages in future cases?

Faced with modest damages, a complainant may decide to use the threat of media coverage to try and obtain a larger settlement (and some employers will happily pay a premium to settle a claim if it avoids brand damage). However, as the media coverage of the David Jones case showed, media attention can damage both parties. Some future complainants are likely to see $850,000 as a yardstick against which the compensation which they are prepared to accept should be measured; others are likely to see the media attention necessary to obtain such a premium as something to be avoided at all costs. Prudent employers will take steps to ensure that both damages available to complainants, and damage to their brands, are minimised.

Lesson 3 – Effective complaints processes are vital

If there’s no sexual harassment, there’s no damage to minimise, and the primary aim of policies ought to be to prevent harassment from occurring. However, the David Jones case also emphasises the importance of ensuring that sexual harassment complaints are dealt with as soon as they occur. In many cases, a prompt, confidential and efficient investigation can prevent litigation occurring at all.

Ms Fraser-Kirk’s statement of claim alleged that her complaints had not been dealt with adequately, and that previous complaints had been made against Mr McInnes which had not been dealt with. Although those allegations were denied by David Jones, the dispute about the effectiveness of David Jones’ response formed the foundation of Ms Fraser-Kirk’s legal claims

It is to be hoped that the publicity which the David Jones case attracted will not discourage employees from making genuine complaints. Of course, no employer will ever be pleased to find that sexual harassment is occurring in its workplace (and every employer should taking steps aimed at prevention, rather than waiting until it is necessary to apply a cure). However, when sexual harassment does occur, it is to the benefit of all parties if it is detected and dealt with quickly. A well-designed complaints policy should be easy for an employee to activate, and should stress that allegations will be treated seriously and with appropriate confidentiality. The policy must also be applied with consistency and care.

Lesson 4 – An employer’s polices may set the standard against which the employer is judged

Complaints policies are not the only policies which were highlighted by the David Jones case. Ms Fraser-Kirk also relied upon alleged breaches of David Jones’ “Code of Ethics and Conduct” to support causes of action for breach of contract and for misleading and deceptive conduct under the Trade Practices Act 1974 (Cth) (“the TPA”) and the Fair Trading Act 1987 (NSW). This is consistent with a trend in recent employment cases – it is becoming more and more common for employees to point out the discrepancies between the way that employers have committed themselves to behave in employment policies, and the way that the employers have, in fact, behaved.

Of course, there are limits to the legal effect of such policies – an employer who commits to “aspiring to be an employer of choice” will not automatically be liable for massive damages if something less than ideal happens to one its employees. However, if an employer commits to a particular investigative process, and then does not follow the process, the employer is going to need a good justification for saying one thing but doing another. When it comes to policies, say it like you mean it, and mean it like you say it – or don’t say it at all.

Policies can provide a basis for a claim under the TPA, which in turn provides a simple mechanism for imposing liability upon individuals for the failings of a corporate employer – which brings us to our final lesson.

Lesson 5 – Sexual harassment is a board issue

As well as naming David Jones and Mr McInnes as respondents, Ms Fraser-Kirk’s statement of claim also named each of the directors of David Jones. One can question the legal reasons for doing this; David Jones was clearly able to meet any damages claim. However, there is no reason, in principle, why such a claim could not succeed. For directors generally (and for executive directors in particular) a theoretical risk has just become that little bit more real.

Directors can best manage their risks in this regard by being aware of what their companies are doing to prevent of sexual harassment, and by leading by example both in relation to their own conduct, and in relation to the conduct which they observe from others in the company.

Conclusion

Most employers would rightly recoil in horror from the publicity which accompanied the David Jones case; indeed most employees would also rightly recoil from the personal cost that Ms Fraser-Kirk appears to have paid as a result of the proceedings. Having seen at close range what such publicity looks like, all employers should use the opportunity to ensure that their policies, procedures and training systems are up to date, so that they are not just keeping up with the Joneses, but learning from them, as well.