In the best of possible worlds, sexual-harassment issues would be ironed out by themselves. But companies shouldn't think they can rely on a self-correcting atmosphere. Simply put, huge numbers of women feel they've experienced sexual harassment at work. And now, under federal law, they can sue and collect damages for such harassment. Under the Civil Rights Act of 1991, a company with fewer than 100 workers can be required to pay up to $50,000 in damages. The bill could go much higher in many states that prohibit harassment.

Your company can be held liable if one of your workers harasses another by exacting sexual favors in exchange for employment or advancement. This is called "quid pro quo" harassment. The second broad category of harassment -- "creating a hostile environment" -- involves a worker who acts in a way that is offensive or intimidating to another. Your company can be held liable for that, too, if you know about the conduct yet do nothing.

Setting up an antiharassment program poses special problems for small companies. First, education is a critical component, but it's costly. Consultants can charge $400 to $500 for a two-hour presentation on the law, defining offensive behavior (see the Equal Employment Opportunity Commission's definition of "harassment," No. 05921463, May 1992) and explaining how to handle it.

Then, too, in the relatively intimate atmosphere of a small company, getting employees to believe they can report harassment without fear of retaliation is difficult. "Harassment happens in companies of all sizes. But in a smaller company where the owner who is king goes around pinching women," employees may be afraid to speak up, says Jon Vegosen, a partner at Levin & Funkhouser, in Chicago.

The best advice for small companies is to follow the nearly universally agreed-upon guidelines to keep harassment from occurring. (See "Steps to Discourage Harassment," No. 05921463, May 1992.) It's not a purely defensive measure. Executed well, an antiharassment policy will help you create an ethos of respect in your company. That's a worthier goal than merely trying to stay out of court.

-- Ellyn E. Spragins

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