This summer, Silicon Valley was rocked by several highly-publicized sexual harassment scandals. Allegations of discrimination and misconduct contributed to the forced resignation of Uber CEO Travis Kalanick. Justin Caldbeck, a renowned venture capitalist, also stepped down from his firm after six women accused him of sexual harassment. He later acknowledged that he had used his “position of power in exchange for sexual gain.” 

“The power dynamic that exists in venture capital is despicably unfair,” Caldbeck said in a press statement. “The gap of influence between male venture capitalists and female entrepreneurs is frightening and I hate that my behavior played a role in perpetrating a gender-hostile environment.”

In many of the recently publicized scandals, the sexual misconduct took place when female businesswomen sought funding or guidance while trying to start businesses. In a recent survey of more than 200 women in the technology industry, 60 percent reported that they were the recipients of unwanted sexual advances. One in three women said they felt afraid for their personal safety, while 66 percent reported feeling excluded because of their gender. 

Of course, sexual harassment is not limited to Silicon Valley or the tech industry. Sexual harassment is the subject of more than 20 percent of the enforcement actions pursued by the Equal Employment Opportunity Commission (EEOC) every year. Not all bad behavior is actionable. Unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature rise to the level of sexual harassment when the conduct explicitly or implicitly affects an individual’s employment, unreasonably interferes with an individual’s work performance, or creates an intimidating, hostile, or offensive work environment.

Proposed California Bill Targets Sexual Harassment in VC Industry 

California is the first state in the country to introduce legislation aimed at deterring sexual harassment by venture capitalists, who don’t typically meet the definition of “employer” under state and federal law.

California law currently establishes liability for sexual harassment when the plaintiff proves specified elements, including, among other things, that there is a business, service, or professional relationship between the plaintiff and defendant. Existing law further states that a relationship may exist between a plaintiff and certain persons, including an attorney, holder of a master’s degree in social work, real estate agent, and real estate appraiser.

Senate Bill No. 224 would include an investor among those listed persons who may be liable to a plaintiff for sexual harassment. "We simply want to add investors to that list, and acknowledge that this simply unlawful behavior is subject to claims of sexual harassment and damages," sponsor Sen. Hannah-Beth Jackson said. If successful, the proposed bill could become a model for other states.

Startups Should Not Make HR an Afterthought

The increased scrutiny on VCs, startups, and the technology industry will likely lead to additional sexual harassment lawsuits. For young companies, establishing workplace policies and procedures often doesn’t receive the attention it deserves. However, a costly employment lawsuit can be devastating, particularly for startups.

In addition to investing in the development of a human resources team, it is essential to implement anti-harassment and discrimination policies. Startups and other young companies must take complaints seriously and be sure that procedures are in place to protect workers from retaliation.

In a small company, where many of the founders are friends, it can be difficult to reprimand or fire a top executive. However, uniform enforcement is one the most effective ways to avoid liability. Under both New Jersey and federal law, having a strong anti-harassment policy in place can help shield businesses from liability.

Do you have any questions? Would you like to discuss the matter further? If so, please contact me, Laura Miller, at 201-806-3364.