Tesla (TSLA) came under increasing pressure last week when California’s civil rights regulator filed a complaint accusing the electric-vehicle giant of allowing nearly a decade of "rampant racism."
The state court complaint comes after at least 90 race-based employee arbitration complaints filed against Tesla since 2016. It alleges that hundreds of Black workers in its manufacturing facilities received lower wages and fewer promotions compared to their non-Black colleagues, and that they were denied training and retaliated against for complaining. Moreover, the complaint says Black employees were subjected to racial slurs and graffiti, as well as more physically demanding labor than their colleagues.
"Segregation at the Fremont factory, along with the absence of Black and/or African Americans in leadership roles, has left many complaints of rampant racism unchecked for years," the complaint from California's Department of Fair Employment and Housing stated.
Tesla isn’t unique among Fortune 500 companies in facing legal complaints alleging racism, though a formal lawsuit from government regulators can pose serious risks. That's because governments can drag on cases for a long period of time, without the same financial considerations facing companies, experts say — meaning Tesla could endure negative publicity from the lawsuit for years. Moreover, the state of California, by suing under the state's Fair Employment and Housing Act, has no damages cap on punitive damages and emotional distress in racial discrimination claims, making the stakes potentially even higher in this case than they would be under federal law.
“Whenever you're dealing with the government, they really don't have a financial bottom line to consider,” employment litigation attorney Rogge Dunn told Yahoo Finance.
While governments do have budgets, Dunn said, they can fight a case for years, keeping Tesla's dirty laundry in the public eye and keeping the company's tab running to retain pricey defense lawyers.
"So the problem is that when you're negotiating with a government entity...it's more of a political decision [for the government] and a matter of principle," he said. "That's what makes it difficult."
“If the [state] can prove the pattern and practice allegations, Tesla could end up paying a huge settlement because damages for harassment can include for pain and suffering and other consequential effects, as well as lost pay for non-promotions,” says Michael Harper, a professor of employment law at Boston University Law School.
Even though there are signs Tesla could face a large penalty in this particular case, California employment discrimination penalties against companies operating within the state have been modest for the past couple of deacades, ranging from $5,000 to $1.8 million.
It's "telling" that California is bringing a case of this magnitude against Tesla, according to employment attorney David Warner of Dorf & Nelson. "In my experience, they're not a very litigious agency. They don't generally bring cases of this magnitude with broad, sweeping allegations of systemic discrimination throughout an organization like that," Warner said. "This is something that I think would cost Tesla a lot of money to defend, and cost the agency a fair amount of resources to prosecute."
California’s complaint, filed on Feb. 9, accuses Tesla of violating state laws against race discrimination, retaliation, and unequal pay, and against failing to maintain records of racial discrimination complaints.
"Even after years of complaints, Tesla has continued to deflect and evade responsibility," it states.
Tesla pushed back in a blog post on Wednesday, criticizing the agency for focusing on misconduct that Tesla says took place years ago, between 2015 and 2019, and for failing to raise concerns about its current workplace practices during its three-year investigation.
"Over the past five years, the DFEH has been asked on almost 50 occasions by individuals who believe they were discriminated against or harassed to investigate Tesla. On every single occasion, when the DFEH closed an investigation, it did not find misconduct against Tesla," the blog post stated. "It therefore strains credibility for the agency to now allege, after a three-year investigation, that systematic racial discrimination and harassment somehow existed at Tesla. A narrative spun by the DFEH and a handful of plaintiff firms to generate publicity is not factual proof."
In order for Tesla to prevail on the state's claims that it paid Black workers lower wages, promoted them less frequently, and disciplined them at higher rates, it will need to show labor records that refute those claims, legal experts told Yahoo Finance.
“Legally, Tesla would need to show [labor] statistics that would indicate that there is not, in fact, discrimination,” Dunn said.
According to Good Jobs First, public and private racial discrimination lawsuits account for more Fortune 500 company payouts than any other type of publicly disclosed discrimination-based claim.
From 2000 to 2019, 99% of Fortune 500 companies paid at least one racial discrimination penalty to government regulators or private parties. In total, publicly disclosed race-based claims across 189 cases totaled $1.1 billion. Topping the payouts is a $192 million private settlement paid by Coca-Cola Company (KO) in 2001 to compensate a group of Black workers who alleged their pay fell below that of non-Black workers they supervised.
In a more recent case, a California jury awarded $137 million, one of the largest ever race-based discrimination awards, to former Tesla contract worker, Owen Diaz, who accused the company of failing to protect him against racist slurs and graffiti in its Fremont, Califorrnia factory.
Yahoo Finance reached out to Tesla for comment on the complaint and did not receive a response.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.
Find live stock market quotes and the latest business and finance news
For tutorials and information on investing and trading stocks, check out Cashay
