Entrepreneurs can reduce the risk of liability with a few straightforward company policies.

By Melodie K. Larsen

No entrepreneur wants to be at the mercy of a disgruntled employee who has filed a sexual harassment lawsuit, so many ignore the issue. Don’t make that mistake. You can take simple measures to reduce your risk of liability.

Following Connecticut’s lead, California recently enacted a law that requires companies with 50 or more employees to provide two hours of sexual harassment education for supervisors every two years. The classroom training must include information and practical guidance regarding the law, the prevention and correction of sexual harassment, and remedies available to victims of harassment. Supervisors must be trained by January 1, 2006, while new supervisors must receive training within six months of being hired.

Some view the new law as yet another roadblock imposed by the business-unfriendly state of California. But as Howden Fraser, a lawyer at Rintala, Smoot, Jaenicke & Rees LLP in Los Angeles who represents employers, says, “You can stamp your feet all you want, but this is something you must do.” The new law can actually benefit businesses. Because an employer is liable for harassment by a supervisor even if the employer is unaware of it is occurring, training supervisors properly may reduce claims. One thing is clear: Employers who fail to comply with the law will be hard-pressed to claim they took all steps to prevent harassment.

Though the Golden State’s new law may be more stringent than others, businesses in any state should do everything they can to prevent sexual harassment claims and defend themselves when claims do arise. Federal law allows employers to defend against some types of harassment by showing not only that they took reasonable steps to prevent and correct sexual harassment, but that the employee failed to take advantage of company procedures. Most states recognize a variant of this defense. Institute written policies notifying employees of their rights, defining sexual harassment by giving concrete examples, and emphasizing the company policy against harassment. The policy should state that employees engaging in harassment will be subject to disciplinary and corrective actions up to and including termination.

You also need to provide a written procedure for reporting harassment. Identify at least two people (other than the employee’s supervisor) to whom harassment should be reported. The policy should state that the company will investigate all claims. Employers must also comply with state laws for displaying anti-harassment posters and information sheets.

In addition, complaints must be promptly and thoroughly investigated by a trained, outside investigator. “Perception is reality,” says Catherine Balin of HR consulting firm EXTTI Inc. of Bell Canyon, California, who has conducted investigations for 30 years. “The investigator is required to be neutral and impartial, which is often difficult to achieve from within.” The investigator must interview the employees involved (and any witnesses) and review relevant documents, including e-mails. After carefully weighing the evidence, if harassment is found, the employer must take appropriate action to stop the harassment. The complainant should be notified of corrective action and how to prevent retaliation.

Melodie K. Larsen is an attorney and partner at Rintala, Smoot, Jaenicke & Rees LLP in Los Angeles specializing in advising employers and defending them in litigation.