Texas Opens the Door to Employers’ Personal Liability for Sexual Harassment Claims

Under the newly amended Texas Labor Code, small businesses—including employers of a single person—can be held liable for harassment claims, as can individuals “acting directly in the interests” of the employer. Here’s what Texas CEOs need to know.

On September 1, 2021, two significant amendments to the Texas Labor Code went into effect as a result of Texas Senate Bill 45 and House Bill 21. Codified at Sections 21.141 and 21.142 of the Texas Labor Code, the new law applies to all Texas employers regardless of company size and expands protections for employees by redefining who may be liable for workplace sexual harassment claims. It also extends the deadline for employees to bring such claims.

Let’s look at each of these changes and what they mean for employers and employees in the state.

Elimination of Size Requirement

Prior to the amendments, only employers with 15 or more employees could be held liable for workplace sexual harassment claims. For such claims, the Texas Labor Code now defines an “employer” as a person who “employs one or more employees.” As a result, effectively all employers in Texas can be held liable for sexual harassment claims under the Texas Labor Code. This is a new avenue for employees to bring sexual harassment claims against small Texas businesses because the threshold under Title VII (the federal law) is still 15 employees.

Increased Risk of Individual Liability

The new law also opens the door to individual liability for employers and those acting on employers’ behalf. It is well established in the federal courts that individuals are not liable under Title VII in their individual or official capacities. Historically, Texas law also did not provide for individual liability for sexual harassment claims brought under the Texas Labor Code. However, the new law broadly defines an “employer” to include any person who “acts directly in the interests of an employer in relation to an employee.”

While it is unclear how Texas courts and administrative agencies will interpret the new law, this expanded definition of “employer” potentially includes supervisors, managers, company owners, officers, directors, human resource professionals, and coworkers, as individuals in those roles frequently act in an employer’s interests. The extent to which independent contractors, customers, and other third parties can be held personally liable if acting in the interest of the employer remains unclear. Accordingly, businesses can expect plaintiffs’ attorneys to name managers, officers, supervisors, and other individuals as additional defendants in sexual harassment lawsuits, even if those individuals are not actually accused of participating in the alleged sexual harassment.

Duty to Take Immediate Corrective Action

Employers must address sexual harassment immediately. The new law provides that an “unlawful employment practice” occurs if there is sexual harassment of an employee and the employer or its agents or supervisors: “(1) know or should have known that the conduct constituting sexual harassment was occurring; and (2) fail to take immediate and appropriate corrective action.”

While the new law provides a detailed definition of “sexual harassment,” it fails to address what constitutes “immediate and appropriate corrective action.” Specifically, under newly added Section 21.141, “sexual harassment” means an unwelcome sexual advance, a request for a sexual favor, or any other verbal or physical conduct of a sexual nature if: (1) submission to it is explicitly or implicitly made a term or condition of an individual’s employment; (2) submission to or rejection of it is used as the basis for a decision affecting the individual’s employment; (3) it unreasonably interferes with an individual’s work performance; or (4) it creates an intimidating, hostile, or offensive working environment.

Until the courts or administrative agencies provide guidance on what qualifies as “immediate and appropriate” corrective action, parties will be left to litigate whether a particular response to sexual harassment, and the timing of that response, satisfies this requirement.

More Time to File the Charge

For alleged sexual harassment occurring on or after September 1, 2021, the new law extends the deadline for employees to file a charge of discrimination with the Texas Workforce Commission to 300 days from the date the alleged harassment occurs. In this respect, the new law aligns with federal law, which provides employees with 300 days to file a charge with the EEOC. However, the 180-day deadline still applies for claims based on other forms of alleged unlawful conduct under the Texas Labor Code, including discrimination based on sex (other than sexual harassment), race, color, religion, disability, or national origin.

Solutions for Limiting Liability and Exposure

Employers in Texas should act now to reduce legal risks and limit potential liability for sexual harassment claims under the new amendments. Here are three items to implement:

• Robust Anti-Harassment Policies. Smaller businesses that have not used an anti-harassment policy in the past need to implement one as soon as possible. All employers should ensure their employment handbooks and policies provide clear procedures for employees to report harassment and discrimination. The policies should provide for an “immediate” investigation of all complaints and “appropriate corrective action” when needed.
• Clear Path for Addressing Complaints. Employers should ensure that all managers, human resources personnel, and other individuals in supervisory positions understand the employer’s policies and procedures for immediately reporting and investigating complaints and concerns and understand they may be personally liable if they fail to do so.
• Sexual Harassment Training. Comprehensive sexual harassment training for all employees is strongly recommended. The training should educate employees on what constitutes sexual harassment, to whom sexual harassment should be reported, and strategies to prevent harassment and abusive conduct.

An Additional Safeguard: EPL Insurance

Since it is impossible to eliminate all risk, Texas employers should consider employment practices liability (EPL) insurance as part of a comprehensive risk-management strategy. EPL insurance covers the employer and all directors, officers, and supervisory employees for a wide range of wrongful employment practices, including sexual harassment. In the event of a claim, EPL insurance covers all reasonable defense costs, settlements, and damages (including punitive and exemplary damages to the extent insurable) with retentions as low as $10,000 for small employers.

Given the significant cost of litigation, even if the claims lack merit, EPL insurance can be a valuable tool to control these unplanned expenses. Premiums vary depending upon the number and locations of employees, specific human resource practices, and prior claims activity, but are often cheaper and more cost-effective than many employers realize. Given the aforementioned developments under Texas law, now may be a good time to evaluate whether EPL insurance makes financial sense for your organization.

Whatever you decide, the updated labor code presents a perfect opportunity to protect your business, ensure that employees are shielded from harassment, and educate your management team on these changes to the law.