Fixing the Lopsided Economics of Workplace Harassment

(Bloomberg Opinion) -- The economics of complaining to your employer are lopsided. That imbalance in financial power helps explain the prevalence of controversial non-disclosure agreements that critics claim keep a lid on allegations of workplace bullying, sexual harassment and racial abuse. It demands a response that goes beyond simply limiting the applications of NDAs.

Penny Mordaunt, Britain’s minister for women and equalities, this week started a government review into the use of these agreements — especially in cases where allegations of sexual harassment and discrimination have been made.

The appeal followed an investigation by the Daily Telegraph into Philip Green, the owner of retail group Arcadia, and the use of NDAs in settlements with former employees amid lurid allegations of inappropriate conduct. Green has categorically denied any unlawful racist or sexual behavior.

Confidentiality suits employers, and may be the least bad option for the targets of abuse, assuming the matter isn’t one for the police. But internal grievance procedures can be compromised by the desire not to rock the boat — especially if the alleged perpetrator is perceived to be a big revenue generator. The risk is a genuine complaint fizzles.

The employee could then try bringing a claim before a tribunal while remaining in their job. Not all types of bullying or harassment can be dealt with this way. So the beleaguered individual may feel no choice but to resign and lodge a constructive dismissal claim for lost earnings. Either way, they face a distressing court fight and hefty legal costs unless someone else — say, a labor union or charity-funded lawyer — takes on their cause. What’s more, damages in constructive dismissal cases are capped at just over 80,0000 pounds ($102,000) in England.

By contrast, the employer can afford the best lawyers in town and has done this before. Faced with a stressful and financially unequal battle with an uncertain outcome, what employee wouldn’t seriously consider a settlement offer?

This may suit both parties — but it might not be in the public interest. It provides little deterrent against repeat abuse. New recruits join the company unaware of that the culture tolerates bullies. The company bears the cost. If its owners are disparate shareholders, they aren’t equipped to ask questions about the costs they are ultimately paying for.

There are now calls to end confidentiality in bullying and harassment settlements. Doing that wouldn’t entirely remove the employer’s incentives to propose a settlement: some companies may still want to avoid the risk of being held liable for bad conduct since such rulings could exclude them from government contracts.

But there are snags. A revised framework should still allow the claimant the right to confidentiality to they can rebuild their career without being branded a troublemaker. If most claimants sought this, companies would then get the benefit for free without paying the secrecy premium currently embedded in NDAs.

There are, sadly, no easy reforms here. That is why employers shouldn’t sit around waiting for Mordaunt’s consultation to grind slowly into policy. They need to do more to pre-empt the use of NDAs or employment tribunals in the first place.

First, some kind of aggregate disclosure of NDA settlements would make sense — just like for other balance-sheet assets. The company has paid money to acquire certain rights. That is useful information to both debt and equity investors. This creates a link between the company’s success in managing inappropriate behavior and its cost of capital.

Second, someone in the company needs their reputation tied to their ability to rock the boat and bear down on powerful managers. An identified non-executive director should have explicit oversight of the company’s grievance-handling process. The natural candidate would be the head of the audit committee, or risk committee, if one exists. The director’s review in the annual report should specifically address the issue.

Third, tie executive pay to good scores on preventing bullying and harassment. Bosses tend to respond to incentives.

At present, just 13 companies in the FTSE 100 Index specifically mentioned “bullying” in annual reports published in the last year, according to data compiled by Bloomberg. Only 34, including those 13, mentioned “harassment” specifically.

Reforming NDAs to balance the rights of accuser and accused better is still worth pursuing despite the challenges. But investors and customers need to be empowered to make more informed decisions about where to put their money — and prospective employees about where to put take their labor. It’s time for companies to be open about how they score.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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