Key takeaways for employers in Tesla’s $ 137 million racial harassment verdict | Obermayer Rebmann Maxwell & Hippel LLP


On October 4, 2021, a California federal jury awarded $ 136.9 million to former black 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 warning to employers regarding the treatment of employees and contractors.

Tesla claimed that Diaz, who worked as a contractor at his plant in northern California, was not an employee with the right to file a discrimination complaint. However, the jury went beyond this superficial distinction and found that Tesla was liable as a “co-employer” of Diaz. Although a “co-employer” is not an “employer” of a worker in the traditional sense of the term, it exercises sufficient control over the worker to be considered an “employer” under various labor laws such as the anti-discrimination laws ¹. As Diaz’s co-employer, the jury found Tesla failed to take reasonable steps 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 investigative procedures at the plant. Surprisingly, she said Tesla’s anti-harassment policy can be found in what the company calls its “Anti-Manual Handbook” in a section called “Stupid Stuff”. She also said the policy applies to all workers, whether they are contractors or direct Tesla employees.

Diaz testified that he found a racist cartoon at the factory, depicting a dark-skinned person with large 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 one final warning. Diaz said other complaints he made had not been properly investigated or resolved, which emboldened the stalkers. Shortly after the incident with the cartoon, Diaz quit working at Tesla, while his stalker was hired as a direct employee of Tesla.

Tesla did not deny that the racial harassment had occurred, but instead tried to blame the recruiting company. According to Tesla, he expects his recruiting agencies to train contractors on relevant anti-harassment policies and investigate allegations of harassment. Tesla’s human resources administrator was unable to explain how Tesla is investigating allegations of harassment among contractors, saying it depends on the case and there is “no one method fixed ”to conduct surveys. Additionally, Tesla does not have written procedures for coordinating racial harassment investigations involving contractors and has not provided any standardized training to supervisors on how to conduct such investigations.

By awarding the huge verdict of $ 137 million, the jury sent a clear message to Tesla and employers across the country: When it comes to accusations of discrimination, the company that runs the facility is responsible for the culture there and can’t hide behind some technicality (in this case, a contract) that says they’re not the primary employer. In short, labeling a worker as a subcontractor does not provide companies with a loophole to avoid liability for racial harassment in the workplace.

Tesla’s resounding defeat provides several valuable lessons for employers. First: Communication is essential when using contractors or recruiting agencies. Navigating the rules of joint liability effectively while mitigating the inherent risks requires close collaboration and communication between staffing contractors and employers. Although staffing agencies often offer general safety and health training, every workplace is different. Companies that use recruitment agencies should develop specific training that is not only tailored to their equipment and the particular hazards of their workplace, but also to achieve a safe and inclusive culture.

Second: Regularly updating your employment policies, especially anti-harassment and discrimination policies, is essential. Well-written policies on discrimination and harassment are aimed specifically at contractors, sub-contractors and other “non-employees” who may be present in the work environment. Tesla had no policies in place regarding the coordination of racial harassment investigations involving contractors, failed to train his supervisors to conduct proper investigations, and downplayed the importance of these issues in writing. Tesla’s complete lack of concern about racial harassment issues has led to an unprecedented verdict that should be a wake-up call to all employers, especially those who rely on recruitment agencies and contractors.

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

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

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