Bias Suits Can Devastate a Startup

August 21, 2013

There is a growing trend in California and it is having a huge impact on startups: According to a recent article in The Recorder, a California business law publication, there has been a surge in bias claims against Silicon Valley technology companies. The figures show that employment suits against California technology companies doubled between 2000 and 2012, with discrimination suits making up the largest portion of those employment claims. Observers point out that there is a big problem among technology companies with age discrimination, sex or gender discrimination, and with African-Americans and Latinos being left out of hiring. The lack of diversity in the industry is particularly noticeable to plaintiffs lawyers, and young startup companies tend to be easy targets because they ignore employment laws in their rush to grow and succeed in the industry.

The issue of sex or gender discrimination in the industry made big news in 2012, when Ellen Pao, a former partner at the California venture capital firm of Kleiner, Perkins, Caufield and Byers, sued her former firm for gender discrimination, claiming that the firm pays and promotes men more than women, excludes women from key meetings, and fails to respond to reports of sexual harassment in the workplace. Since Pao filed her lawsuit, many more women have filed similar claims, and Pao’s attorney says he has seen an increase in gender discrimination claims based on violations of state and federal laws governing maternity and disability leave. Interestingly, Sheryl Sandberg’s book, Lean In: Women, Work, and the Will to Lead, has been credited with increasing demand letters from female employees of technology companies, who claim their employers unfairly denied them promotions. The figures seem to support the claims. According to the Institute for Women’s Policy Research, which analyzed data from the Bureau of Labor Statistics, in 2012, only 20 percent of software developers were female, earning 18 percent less than their male counterparts. On the other hand, the data also shows that the labor pool itself is male dominated, making it difficult to hire women in the industry: In 2010, women made up 57 percent of college graduates, but only 18 percent of computer and information science degrees.

Since 2010, technology companies have also been on heightened alert for age discrimination claims. That year, the California Supreme Court reversed a lower court’s grant of summary judgment to Google in a case filed by 54-year-old employee Brian Reid who alleged he was fired because of his age. Reid claimed his supervisor and other employees called him an “old man” and “old fuddy duddy.” The Supreme Court found that the remarks could be evidence of discrimination.

Several weeks ago, we discussed the sexual harassment claims against San Diego Mayor Bob Filner and the importance of employee training, and noted that the startup graveyard is littered with promising enterprises that were destroyed by the misconduct of a single, new employee. Juries continually award multi-million dollar verdicts in those cases and the large verdicts are not reserved solely for sexual harassment claims; the same is true when startups are faced with the types of discrimination claims discussed above, many of which may be brought in retaliation for termination. Thus, it is imperative that startup companies not only train their employees, but also establish written employee policies/handbooks, and if such policies are already in place, examine them to ensure that they are up to date with current laws and relevant to the company environment. It is also essential for startups to establish and maintain employee records so that all unwanted behavior and/or poor performance is documented. Taking these proactive steps can minimize exposure to the types of lawsuits that can devastate a startup.

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