MECHELLE VINSON SUCCUMBED to her boss's advances at least 40 times during a four-year period. She didn't notify top management until she quit and charged the company with sexual harassment.

Her suit, which the U.S. Supreme Court is expected to decide soon, could broaden corporate liability in sexual harassment cases. Such lawsuits usually charge that an employee lost a job or promotion for not yielding to sexual advances. But the federal appeals court ruled that the Washington, D.C., company, now called Meritor Savings Bank, is liable because of the existence of a sexually hostile environment. "Sexual harassment can be a violation even if the individual doesn't suffer economic harm," says Christine Masters, a trial attorney with the Los Angeles Equal Employment Opportunity Commission.

The most explosive issue concerns to what extent a company is liable when it doesn't know about harassment. Meritor has had a written policy against sexual harassment and a formal grievance procedure. It claims that it neither knew nor could have known about the incidents. Lower federal courts have split over corporate liability in such cases. But the appeals court followed Equal Employment Opportunity Commission guidelines that impose liability without regard to whether the employer knew what was going on. "The issue is whether companies are strictly liable for the acts of their supervisors," says Brian Hembacher, directing attorney of Los Angeles's Department of Fair Employment & Housing.

The outcome of Vinson's battle could change the way businesses manage their employees. Small companies, many of which don't even have formal policies, may have to become aggressive in telling employees about corporate policy and in opening up grievance procedures. Some may begin inquiring about personal lives. "Companies could be put in the position of having to be absolute insurers of their employees' behavior," says Stephen Bokat, vice-president of the National Chamber Litigation Center. "They may even want to prohibit any kind of sexual behavior between employees, which will raise questions about invasion of privacy."