Like most companies its size, J.D.A. Professional Services Inc., a 60-person, high-tech headhunting firm in Houston, had no sexual-harassment policy two years ago when recruiter Rachel Thompson complained that a male co-worker in the next cubicle--the firm's top producer-- had made allegedly offensive comments. The colleague denied it, but owner James Del Monte moved Thompson to the other side of the 30-by-30-foot office anyway. That was still too close for Thompson, and she eventually left the company.

The messy confrontation convinced Del Monte he needed to take some precautions. So in late 1995, he shelled out a hefty $15,000 fee for a human-resources consultant to do a top-to-bottom review of all the company's employment policies. The consultant also provided sexual-harassment training and developed a plan for formal handling of harassment complaints. ''It's like buying insurance,'' Del Monte says. ''It's always too expensive--until you need it.''

''WHIPLASH OF THE '90s.'' These days, business owners who fail to deal with the issue of sexual harassment are running big risks. Companies of all sizes increasingly face lawsuits, lawyers say. Since Anita Hill testified in 1991, complaints to the Equal Employment Opportunity Commission have more than doubled, to 15,342 in 1996. Unfortunately, many are frivolous; last year the EEOC found ''no reasonable cause'' for action in 38.8% of cases. Management lawyers say it has become common for terminated employees to fire back with sexual-harassment claims. ''Some people call it the whiplash of the 1990s,'' quips Nancy E. Pritikin, a management lawyer at San Francisco-based Littler Mendelson. And small businesses are more vulnerable to ''these after-thought claims,'' she says, because they have fewer formal procedures.

While some forms of sexual harassment are obvious--a demand for sexual favors, for instance--the law defines it as any ''unwelcome sexual conduct'' that creates a ''hostile work environment.''

That leaves room for interpretation that could prove fatal, even to a company as large as California Acrylic Industries Inc. Despite $125 million in sales, the Pomona (Calif.) hot-tub maker was so debt-laden that its net worth stood at just $5.9 million when it was hit with a $1 million sexual-harassment verdict in 1993. The company was saved only because a court cut the award to $350,000, says Mary Maloney Roberts, Acrylic's Oakland (Calif.) lawyer. Fear of crippling verdicts propels most small companies into settlement talks long before trial, says Roberts, even if they're convinced the allegations are baseless.

In the hothouse climate of a small company, the damage of a harassment complaint goes beyond litigation risk. Once an allegation is aired, it may be impossible for the people involved to get far enough away to co-exist.

Susan W. Brecher, director of Cornell University's EEO studies program, who conducts sexual-harassment training, points to a recent effort at mediation in a 25-employee communications company as typical. The dispute involved one of the partners and a young woman who claimed he had made inappropriate comments. Once, she said, he had pinned her against a wall. The partner denied the charges but agreed to stay away from her--then broke his agreement. Brecher can't think of how to resolve the problem since the woman still deals with the same partner. ''She really needs to look for another job,'' she says. In such a situation, Brecher says she often suggests a buyout, which gives the worker something and protects the company against a suit later.

OFFENSIVE CONDUCT. Without a human-resources department to set an institutional tone, the small-business owner personally signals what's acceptable. The moxie it takes to launch a company can take an ugly twist, say lawyers who represent harassment victims. ''Some small-business owners think, hey, it's my company, I can do whatever I want,'' says Margaret A. Harris of Houston's Butler & Harris. How bad can it get? Harris cites a 1994 case she brought against Houston's Medical Care Ambulance Service Inc. The owner, Jonathan N. Lee Jr., told his female employees that he wanted them to wear short skirts so he could ''see some leg'' and insisted a job applicant pull her dress to her upper thigh and sit with her legs spread, according to the complaint. Harris sought $450,000 in damages; the case was settled for an undisclosed sum. Through his lawyer, Lee denies the harassment occurred and declines comment.

On the other hand, contact with employees can allow a business owner to discover a problem and nip it in the bud. In her days as an employee, Boston-based civil engineer Judith Nitsch saw how to effectively react to offensive conduct. The same day her firm's chief engineer heard of a harassing remark, he sent a memo to all 35 employees that such conduct wouldn't be tolerated. It stopped.

When Nitsch opened her own firm in 1989, which now has 54 employees and $3.6 million in annual revenues, she also took a hard line. She not only created a sexual-harassment policy but also named a male and a female employee to whom workers can report complaints directly. She says this has worked well.

You don't have to spend thousands of dollars to take the kind of preventive steps Nitsch and Del Monte did. At Rare Medium Inc., a 36-person, Manhattan-based firm that creates interactive Web advertising, President Glenn S. Meyers created his ''zero tolerance'' policy himself. He mined Internet sites such as the American Civil Liberties Union's Web site (www.aclu.org). There are also software programs retailing for less than $100 that can help create a manual, such as Employee Manual Maker 3.0 by JIAN Tools for Sale Inc. in Mountain View, Calif. The program, designed for companies with 100 or fewer employees, also has a sexual-harassment questionnaire and discussion guide. Cheaper still, try networking with other companies and cutting and pasting from their policies.

After developing a policy, you should begin training. Brumberg Publications Inc., of Brookline, Mass., sells a $95 training video aimed at companies with 15 or fewer employees. In February, Open Interactive Media of New York came out with a $425 interactive CD-ROM about harassment for supervisors at companies with less than 100 employees. There's even a board game on employment law available from the Littler Mendelson law firm that teaches managers how to address sticky situations (table). At $99, it costs a lot less than an hour of a lawyer's time.

Ultimately, however, the best defense isn't a board game, video, or strongly worded policy. To talk the talk, experts say, the boss must walk the walk. ''If the senior people behave appropriately, that's the message that's communicated, irrespective of what's in the policy,'' says training consultant Lynn Revo-Cohen. Best of all, it doesn't cost a thing.

By Karen Donovan in New York

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(Note: This is an expanded version of the quiz that appears in the Oct. 13, 1997 issue of Business Week.)

QUESTIONS

1. Which of the following is NOT an example of hostile environment sexual harassment?

A. Where repeated unwelcome sexual comments alter the conditions of a complainant's employment.

B. Where listening to repeated, offensive sexual jokes is a condition of employment.

C. Where a nonmanagement employee's sexual conduct toward the complainant creates an abusive work environment.

D. Where the manager asks an employee out on a date and she refuses.

E. All of the above would support a claim of hostile environment sexual harassment.

2. Jordan sent an E-mail message to an employee recently assigned to his team complimenting her on her dress. Later she was reprimanded for poor performance. She responded that this must have been caused by her refusal to become involved with Jordan. Jordan is stunned and denies doing or saying anything that could be construed as sexual harassment. What advice would you offer Jordan?

A. Quit and find another job.

B. Don't worry. Everyone knows that this employee is unstable.

C. Cooperate fully in the investigation. If the only evidence of sexual harassment is an occasional compliment on an employee's choice of clothing, it is hard to imagine that this would create a hostile work environment.

D. Take a training course on sexual harassment.

E. Hire a good lawyer.


3. The Equal Employment Opportunity Commission (EEOC) defines sexual harassment as unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature when:

A. Submission to such conduct is made a term or condition of employment.

B. Submission to or rejection of such conduct is used as a basis for employment decisions affecting the individual.

C. Such conduct has the purpose or effect of unreasonably interfering with an employee's work performance.

D. Such conduct has the purpose or effect of creating an intimidating, hostile, or offensive work environment

E. All of the above.


4. Rita had a consensual affair with Phil, one of her co-workers. They stopped seeing each other. However, Phil has been sexually propositioning Rita over the last several weeks at work. Rita now finds Phil's sexual comments to her offensive. Does Rita have a viable sexual harassment claim against Phil based on these recent comments to her?

A. No, because Rita had previously had an affair with Phil

B. No, because verbal remarks, without any physical touching, are insufficient to predicate a sexual harassment claim.

C. Yes, because the affair between Rita and Phil ended several months ago.

D. No, unless Rita has made it clear to Phil that the affair is over and that she now finds his sexual remarks offensive.

E. Probably, if Phil continues to make sexual remarks in the future.


5. You are Susan's supervisor. She comes to you and confidentially reports that a co-employee is bothering her in a sexually suggestive manner. You offer to investigate the matter. She firmly rejects the offer and states that she merely wanted you to be aware of the situation in case it became worse. What is your best next move?

A. Keep a close eye on the co-employee and report the matter to senior management if Susan complains again or you independently observe inappropriate conduct.

B. Report the matter immediately to senior management; however, protect Susan by characterizing the complaint as originating from "an employee."

C. Immediately fire Susan for noncompliance with the sexual harassment policy.

D. Find a reason to immediately terminate the co-employee.

E. Tell Susan that as a supervisor you are obligated to report and follow up on certain matters. Afterward, report the matter to senior management and seek assistance in handling the matter.

F. Afterward, report the matter to senior management and seek assistance in handling the matter.

6. Which statement best describes a supervisor's, manager's or team leader's potential personal liability for sexual harassment?

A. Individual supervisors are immune from personal liability because they are not employers (only agents of their employer).

B. Supervisors have no personal liability but may be disciplined by their employer.

C. It is common in many states for a supervisor to be individually named in a charge and/or a lawsuit claiming sexual harassment.

D. Sexual harassment must be very extreme before a claim can be made for individual liability against a supervisor, manager, or team leader.

E. Supervisors, managers, and team leaders are protected from individual liability under the National Indemnification Act.

7. Gavin is thinking of dating an employee in his work group. He works long hours and has not met anyone outside of work. He believes that this relationship might have long-term possibilities. What is the best advice to Gavin regarding the problems of sexual harassment?

A. Go for it -- this is a personal decision unrelated to the workplace.

B. If Gavin dates an employee he directly supervises, his employer will likely terminate him. Gavin should know this before proceeding.

C. This is a personal decision and will probably result in a successful long-term relationship and even a marriage.

D. Almost all such relationships result in claims of sexual harassment or sexual favoritism. Gavin should keep looking.

E. None of the Above.


ANSWERS:

1--D. An employee may proceed on a sexual harassment claim where the sexual conduct complained of is sufficiently severe or pervasive to alter the conditions of the complainant's employment and create an abusive working environment. The example here suggests a one-time only event which would not be sufficiently severe or pervasive. Answers A, B, and C all describe scenarios that would support a hostile environment theory.

2--C. Because the E-mail communication is slightly suggestive (although nothing was intended), it can be used to make more believable other statements that Jordan may deny having made. E-mail and voice mail should be used on the assumption that they will be broadcast on the six o'clock news. Therefore, Jordan should keep E-mail messages limited to company business and recognize that such communications can be taken out of context and have far greater impact than ever intended. Because verbal statements are hard to prove and come with qualifications and explanations, written statements or recorded calls may get far more attention and weight than their authors ever intended or envisioned. Also, such records are remarkably reproducible. A chat on the computer is not the equivalent of a conversation in the lunchroom.

3--E. All of the above defines what is meant by sexual harassment under the EEOC's guidelines. Quid pro quo sexual harassment occurs when a supervisor or manager conditions an employment benefit or continued employment on the employee's acquiescence in sexual behavior. Hostile environment sexual harassment occurs where sexual jokes, graffiti, suggestive remarks, cartoons, or sexually derogatory comments create an intimidating, hostile, or offensive work environment.

4--D. Where an employee had a consensual relationship with a co-worker, she must make clear to the other that the affair has ended and that she wants the romance to stop. If the co-worker thereafter persists in harassing the other, he could well be liable to his former paramour for sexually harassing her. If the employer receives a complaint about or knows of the harassing conduct and fails to take effective action to stop it, the employer could be liable.

5--E. The entire company is on notice through Susan's "confidential" report. To take no further action could subject the company and her supervisor to liability. Also addressing the problem at the earliest possible stage is the best way to find a solution. Finally, explain to Susan that the co-employee may be bothering other employees even if he subsequently leaves her alone. Doing nothing could be as bad as answers C and D.

6--C. Individual liability is a serious issue with regard to sexual harassment. Under many state laws, individuals do have liability, and it is common for supervisors, managers, or team leaders to be named in claims. In California, for example, juries have awarded damages against individual supervisors (as well as other employees) for individual acts of sexual harassment and/or related personal injury. Many employers provide legal representation for their supervisors, managers, and team leaders; however, there is no indemnification requirement if the supervisor, manager, or team leader is found liable. Of course, many nonlegal consequences also underscore the seriousness of the issue. Public and private embarrassment, loss of management time, and discipline are very real potential consequences of supportable claims of sexual harassment.

7--E. Some organizations have antifraternization rules. However, many employers ultimately regard dating of employees to be a personal decision, provided that it does not negatively affect the workplace. Unfortunately, dating between a supervisor and a supervised employee is supercharged with legal problems. If the employee rejects the advances and is later denied a promotion or disciplined, a question will exist as to whether the rejection was at least a partial motive for the decision. If the couple dates, sexual favoritism claims are possible. If the relationship ends on a less than a positive basis, any work-related problem has the potential for sexual harassment claim. Even if no claims are made, Gavin will be reluctant to administer discipline and make assignments without at least considering the potential for a harassment claim. This places a tension in the workplace that makes life very complicated. Regardless of whether a claim is actually made, dating between supervisors and employees should be recognized as a high-risk activity.

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