The idea of an office holiday party sounded perfect—celebrating together with a glass of egg nog, a nice dinner and maybe some dancing under the mistletoe—until a video turned up on YouTube showing Frank from accounting on top of the bar dancing naked.

This is not an article telling employers not to host holiday parties. In fact, celebrating a good year can boost office morale. But there are some things employers should be aware of, and do, before decorating the lobby with boughs of holly.

First, companies need to remind employees that office rules apply not only to work time but also to all company sponsored events, such as the holiday party. This should be done beforehand, perhaps in a memo, as part of a meeting with employees or by putting a note in paychecks. The notice should stress that the company wants employees to have a good time but also expects them to act responsibly and avoid inappropriate behavior. It might also be appropriate to include in the notice examples of inappropriate behavior. It is further recommended that holiday parties be made optional. Finally, companies may also want to appoint someone as a chaperone for the party who can make sure issues that arise are dealt with quickly.

The reason is simple. Employers may be liable for harassment under Title VII of the Civil Rights Act of 1964 even though it occurred at a holiday party and not the shop floor. Under Title VII, conduct is unlawful if it is both (1) unwelcome and (2) severe and pervasive. Severe and pervasive is a sliding scale. One holiday party incident is less likely to impose liability, but it could if it follows previous acts of misconduct. And, there are definitely instances where one incident is enough, such as physical touching.

In addition, companies should consider whether it wants to serve alcohol and, if so, how alcohol consumption might be managed. For example, it might be appropriate to limit consumption by passing out drink tickets or having the bar open for only a certain amount of time. Serving food will provide some assistance in reducing the general intoxication level. Having the party at a restaurant or bar will help guard againt the employer having liability for injuries later caused by an intoxicated employee. At least, companies should hire a professional bartender and instruct that person not to serve anyone who is visibly intoxicated. Also, offering cab vouchers at the end of the night or arranging for alternative transportation may reduce liability.

Depending on the state, an employer may be liable for employees who consume alcohol at company functions based on common law negligence, supervisory responsibilities, or Dram Shop laws, which hold the provider of alcoholic beverages served to visibly intoxicated individuals liable for injuries cause during intoxication.

There is one final issue: What to do about Frank from accounting? At the very least, there should be a serious discussion with Frank about his inappropriate conduct and documentation of the discussion placed in his file. If his actions are part of an ongoing course of conduct, more serious discipline, up to and including termination, should be considered. Employers are within their rights to discipline employees who engage in misconduct at employer-sponsored events. The employer’s duty is to take that action which is reasonably designed to end the harassment. This standard must drive the decision regarding the discipline to be imposed.