We at Suits by Suits are so excited by American Apparel’s dispute with its recently-fired CEO and founder Dov Charney that we can barely keep our shirts on. After all, the dispute between the clothing manufacturer and its controversial former leader is bursting at the seams with takeaway points for feuding companies and C-suite employees (and those wanting to avoid having feuds). For example, as we described in an earlier post, the dispute illustrates that terminating a key company officer may jeopardize company financing. The dispute also presents the question: can a company like American Apparel, which knew that Charney was apparently known for not being able to keep his pants on, decrease its exposure to the inevitable sexual harassment lawsuit by having all of its employees acknowledge in writing that the company’s workplace is sexually charged? It depends.
Under Title VII and similar state anti-discrimination laws, a sexual harassment claim based on a hostile work environment turns in part on whether a reasonable person in the employee’s circumstances would have found the environment hostile or abusive. (EEOC guidance on the reasonable person standard for sexual harassment claims is here.) American Apparel may have hoped that, short of controlling Charney’s allegedly bad behavior at work, it could at least defend against future claims by arguing that a reasonable person would not have found the workplace hostile or abusive after having expressly acknowledged in writing that a Charney-led workplace is sexually charged. Meanwhile, American Apparel always had another card up its sleeve – the one that it just played when it fired Charney.