If organized fun offers a rare escape from memos, policy, and legalese, it can also occasion such drudgery. Yes, even in an era of sensitivity training and dry Christmas parties, actionable happens. "The biggest problems occur at functions held by smaller companies," says Bruce Alper, chair of the employment law practice at the Chicago-based firm Vedder Price. "You close a big deal, everyone goes out together, and people start flirting."

Legal risks stemming from fun come in three broad categories: workers' compensation, negligence, and sexual harassment. Workers' comp claims--for instance, Bill breaks his tibia at a company rock-climbing excursion--are capped by law and are generally covered by insurance. Injuries involving negligence are not. If Bill gets tanked at a company picnic and hits another motorist while driving home, damages against his employer can reach into the millions. Sexual harassment can happen anytime, but, Alper notes, the risk is greater at events that include drinking, intergenerational mingling, and--gasp--dancing.

Because knowing the law is not the same as keeping it in mind under all circumstances, Alper's firm has instituted its own reforms to its formerly freewheeling Christmas party: The taps run dry at 10 p.m. and the firm offers discounted rates at a nearby hotel to employees who shouldn't drive home. "It's more vanilla," Alper concedes, "but it's something that had to shift."