Key Takeaways for Employers from the $137 Million Race Harassment Verdict Against Tesla

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Obermayer Rebmann Maxwell & Hippel LLP

On October 4, 2021, a federal jury in California awarded $136.9 million to a Black former Tesla subcontractor, Owen Diaz, after finding that Tesla subjected him to a racially hostile work environment.  The jury awarded Diaz $6.9 million to compensate him for lost earnings, pain, and suffering, and $130 million to punish Tesla.  This landmark verdict is a cautionary tale for employers regarding the treatment of employees and contractors alike. 

Tesla claimed that Diaz, who worked as a contractor at its Northern California factory, was not an employee entitled to bring a discrimination claim.  However, the jury looked past this superficial distinction and found that Tesla was subject to liability as Diaz’s “joint employer.” While a “joint employer” is not a worker’s “employer” in the traditional sense, it exercises sufficient control over the worker to be deemed an “employer” under various employment laws such as anti-discrimination statutes ¹. As Diaz’s joint employer, the jury found that Tesla failed to take reasonable steps necessary to prevent the unlawful harassment.

At trial, Tesla’s human resources administrator testified about the company’s anti-harassment policies, trainings, internal complaint procedures, and investigation procedures at the factory.  Astoundingly, she testified that Tesla’s anti-harassment policy is in what the company calls its “Anti-Handbook Handbook” under a section entitled “Stupid Stuff.”  She also testified that the policy applies to all workers, regardless of whether they are contractors or direct Tesla employees. 

Diaz testified that he found a racially offensive cartoon at the factory, depicting a dark-skinned person with big lips and a bone in his hair with a caption that read, “Booo”.  Another subcontractor admitted to drawing the cartoon, but only received a suspension and a final warning. Diaz said other complaints he made were not properly investigated or resolved, emboldening the harassers.  Shortly after the incident with the cartoon, Diaz stopped working at Tesla, while his harasser went on to be hired as a direct Tesla employee.

Tesla did not deny that the racial harassment occurred but instead tried to pin the blame on the staffing company.  According to Tesla, it expects its staffing agencies to train contractors on relevant anti-harassment policies and to investigate allegations of harassment.  Tesla’s human resources administrator was unable to explain how Tesla investigates allegations of harassment among contractors, saying that it depends on the case and that there is “not one fixed method” for conducting investigations. In addition, Tesla has no written procedures for coordinating investigations into racial harassment involving contractors and did not provide any standardized training to supervisors on how to conduct such investigations.

In awarding the whopping $137 million dollar verdict, the jury sent a clear message to Tesla and employers across the country: when it comes to charges of discrimination, the company that runs the facility is responsible for the culture there, and cannot hide behind a legal technicality (in this case, a contract) that says they are not the primary employer. In short, calling a worker a subcontractor does not provide businesses with a loophole to avoid liability for racial harassment in the workplace.

Tesla’s eye-popping defeat provides several valuable lessons for employers. First: communication is critical when using contractors or staffing agencies.  Effectively navigating the rules of joint responsibility while mitigating the inherent risks requires close collaboration and communication between staffing contractors and employers.  While staffing agencies often provide general safety and health training, every workplace is different. Businesses that use staffing agencies should develop specific training that is not only tailored to their particular workplace equipment and hazards but also to achieve a safe and inclusive culture. 

Second: regularly updating your employment policies, particularly anti-harassment and anti-discrimination policies, is critical.  Well-drafted policies regarding discrimination and harassment specifically address contractors, subcontractors, and other “non-employees” who may be present in the work environment.  Tesla did not have any policies in place with regard to coordinating investigations into racial harassment involving contractors, did not train its supervisors to conduct proper investigations, and downplayed the importance of these issues in writing.  Tesla’s complete lack of concern over issues of racial harassment led to an unprecedented verdict that should be a wake-up call for all employers, especially those who rely upon staffing agencies and contractors.

As always, HR Legalist urges all readers to consult with their legal counsel for advice on navigating joint employment issues in their respective jurisdictions. The attorneys at Obermayer have experience reviewing and revising employer policies and notices to ensure compliance with employment laws and regulations.

¹ Under the joint employment doctrine, an employee formally employed by one employer (the primary employer) may be deemed constructively employed by another employer (the secondary or putative joint employer) if that secondary employer exercises sufficient control over the employee’s terms and conditions of employment. If a joint employer relationship exists, the secondary employer is a joint employer of the primary employer’s employees over which the secondary employer exercises sufficient control. The secondary employer generally is not a joint employer of all of the primary employer’s employees (unless it exercises sufficient control over each of those employees).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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