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Getty Images/iStockphoto[/caption] Executive heads continue to roll in the wake of the #MeToo movement, which now has boards of directors and shareholders in its crosshairs. This has produced vigorous debate regarding the responsibility to avoid and remedy workplace harassment. Plaintiffs have asserted legal claims against outside directors and some investors, alleging that board and investor actions—or lack of action—aided and abetted harassment by company employees. Do these claims take #MeToo’s finger of blame too far? Can outside directors be personally liable for alleged harassment by company employees? And are outside investors and their firms potentially liable? Despite the continued ferocity of the movement, most of these claims are likely to fall flat. Employment and other laws place individual liability on those who harass employees, but most do not impose liability on nonharassers for failure to take sufficient action to prohibit harassment. Only when a defendant supplies “substantial assistance or encouragement” for the inappropriate conduct does a nonharasser become potentially liable for another’s harassment. As we discuss below, this is a rare scenario. And there are proactive steps boards and investors can take to steer clear of the #MeToo movement’s legal consequences.

California’s Aiding and Abetting Guidance

California law expressly prohibits discrimination and the aiding and abetting of discrimination. Cal. Gov. Code Sections 12900–12996 (Fair Housing and Employment Act or FEHA). But the Fair Employment and Housing Act does not define what actions constitute aiding and abetting, leaving the courts to determine what conduct is sufficient. One of the key elements of an aiding and abetting claim is the requirement of concerted activity by more than one person. Under California law, aiding and abetting is akin to conspiracy; it requires two people helping one another—a concerted wrongful act. For that requirement alone, an aiding and abetting claim will typically fail against individual managers alleged to have assisted corporate harassment in California. See Janken v. GM Hughes Electronics, 46 Cal. App. 4th 55, 78 (1996) (rejecting aiding and abetting claim against individual supervisors: “since a corporation can act only through its employees, the element of concert is missing in the 'aiding and abetting' context”). An aiding and abetting claim against a third party, such as an outside director or investor, may meet the two person mandate but must also be based on significant wrongful conduct by that third party. For example, in a recent California case, the employer’s lawyer sent a letter to the plaintiff, a terminated employee with a pending discrimination lawsuit against the employer, telling the plaintiff to communicate with the employer only through counsel. The court held that the lawyer’s conduct in providing this instruction in the letter was not substantial assistance or encouragement of wrongful conduct and therefore could not have aided and abetted discriminatory conduct under FEHA. See Hall v. Hamilton Family Center, Case No. 13-cv-03646-WHO (N.D. Cal. Apr. 11, 2014). The courts also confirm that a failure to act typically does not meet this ‘substantial assistance’ standard. Thus, where a plaintiff alleges a failure to investigate, and cannot prove that a defendant knowingly gave substantial assistance to one who performed the alleged wrongful harassment or discrimination, a FEHA claim for aiding and abetting liability will likely fail, as in Compare Berg & Berg Enterprises v. Sherwood Partners,131 Cal. App. 4th 802, 823 fn 10 (2005) (aiding and abetting “necessarily requires a defendant to reach a conscious decision to participate in tortious activity for the purpose of assisting another in performing a wrongful act.”); and Fiol v. Doellstedt, 50 Cal. App. 4th 1318, 1326 (1996) (“A supervisor who, without more, fails to take action to prevent sexual harassment of an employee is not personally liable as an aider and abettor of the harasser, an aider and abettor of the employer or an agent of the employer. A supervisor does not aid and abet a harasser by mere inaction.”); with Gibson-Jones v. Berkel & Co. Contractors. Gibson-Jones v. Berkel & Co. Contractors, 2008 WL 782568 at *5 (N.D. Cal. Mar. 21, 2008) (if counsel for the employer “knowingly misled the plaintiff into believing” the company was fulfilling its duties to investigate and take appropriate corrective action, and acted to aid the company to avoid fulfilling its duties and discourage plaintiff from pursuing her rights, then counsel gave “substantial assistance or encouragement” sufficient to aid and abet the wrongful conduct). The aiding and abetting standard thus appears to require three elements: misleading communications to the plaintiff; knowledge by the defendant that the employer was failing to comply with its obligations; and the defendant’s intent to discourage plaintiff’s pursuit of FEHA rights.

Other State Guidance

Although federal discrimination statutes do not expressly prohibit the aiding and abetting of discrimination, various other state statutes do. For example, New Jersey, New York, Pennsylvania, New Hampshire, and Oregon all prohibit aiding and abetting discrimination. Different states take varying approaches to the issue. In New York, federal courts have refused to dismiss aiding and abetting claims under the New York State Human Rights Law (NYHRL) and the New York City Human Rights Law. See e.g., Delisi v. National Association of Professional Women, 48 F.Supp.3d 492 (E.D.N.Y. 2014) (motion to dismiss aiding and abetting claim against general counsel denied where, after the plaintiff’s return to work, she alleged that the general counsel attempted to coerce her into signing documents about her discrimination and retaliation claims by falsely representing that the documents had been reviewed by her counsel); Magnotti v. Crossroads Healthcare Management, 2016 WL 3080801 (E.D.N.Y. May 27, 2016) (motion to dismiss NYSHRL and NYCHRL aiding and abetting claims against supervisor denied where supervisor knew about the plaintiff’s condition, received updates about his recovery, and participated in the conversation notifying plaintiff about the decision to reduce his hours); Lewis v. Triborough Bridge & Tunnel Authority, 77 F. Supp. 2d 376 (S.D.N.Y. 1999) (denying summary judgment for NYHRL aiding and abetting claims); Equal Employment Opportunity Commission v. Suffolk Laundry Services, 48 F. Supp. 3d 497 (E.D.N.Y. 2014). In contrast, in Pennsylvania, federal courts dismissed aiding and abetting claims against individual defendants where there is no corresponding discrimination violation by the employer (and thus, no ability to aid it). See, e.g., Scully v. Allegheny Ludlum, 2007 U.S. App. LEXIS 28485 (3d Cir. Dec. 10, 2007) (affirming dismissal of PHRA aiding and abetting claim because underlying age discrimination claims under ADEA and PHRA against employer dismissed); Unangst v. Dual Temp, 2012 U.S. Dist. LEXIS 36852 (E.D. Pa. Mar. 19, 2012) (summary judgment granted in favor of individual defendants on PHRA aiding and abetting claim where underlying PHRA claim against employer dismissed). Thus, while courts have thus far taken different approaches to aiding and abetting liability, cases do not suggest that a mere failure to act is itself sufficient to establish liability. Of course, with the continued environmental changes caused by the #metoo movement, this could change, including through legislative efforts.

The 'Caremark' Claim

Potential liability exists for board members through derivative claims. A derivative Caremark claim gives rise to potential liability when a plaintiff shows the corporation has acted unlawfully and sustained loss. Under Caremark, the board of directors can be personally liable for that loss if its members breached a duty to the corporation, In re Caremark International Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996). Plaintiffs have yet to bring many of these claims in the #metoo context. However, in theory, a Caremark #MeToo plaintiff would need to show that a majority of disinterested board members knew specific facts that put the corporation at risk of a very significant FEHA (or other applicable state law) litigation or settlement and did not act upon that specific knowledge. Essentially, the plaintiff must show that the board breached a duty of care to the corporation by putting it at risk for extreme financial loss and negative publicity. “The inaction must suggest not merely inattention, but actual scienter,” see Melbourne Municipal Firefighters' Pension Trust Fund on Behalf of Qualcomm v. Jacobs, 2016 WL 4076369, at *7 (Del. Ch. Aug. 1, 2016); Oklahoma Firefighters Pension & Retirement System v. Corbett, C.A. No. 12151-VCG (Del. Ch. Dec. 18, 2017). This evidentiary burden is exceedingly high. In fact, courts have stated a “Caremark claim is possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” These claims have been largely unsuccessful in other circumstances because courts have dismissed them at the pleadings stage.

Avoiding Abetting Claims

What should boards and investors do to protect against aiding and abetting and related claims for harassment and discrimination? First, board members should reach an understanding with the company regarding the level of involvement the board expects to have with harassment and discrimination complaints. Not all complaints rise to the board level; those regarding executives or other highly sensitive situation, including what is likely to be difficult media coverage, may. Board members should discuss their expectations and reach agreement on the timing and substance of updates. Second, discussions of potential or pending claims should, under most circumstances, be conducted with legal counsel, either in house or outside counsel, and protected by the attorney client and work product privileges. To ensure the protections apply, those involved in the discussions should keep the discussions confidential and properly label related emails and notes. There may come a time at which the company chooses to waive the privilege to protect against the types of claims discussed above, but that is a decision to be reached only after careful analysis. Third, board members should confirm that the company has appropriate preventative measures in place: a strong anti-harassment policy communicated clearly to employees and an anti-harassment training program (compliant with any applicable state laws), as well as an effective complaint process that encourages employees to raise concerns, ensures investigations of complaints occurs promptly, and adopts a practice of addressing policy violations and prohibits retaliation. Fourth, if issues or claims arise, board members should insist that experienced legal counsel provide advance about how best to remedy concerns and avoid future issues. The board should follow up to ensure that harassment matters were properly handled, and that a resolution reached if possible. These steps provide significant protections from allegations that board members provided substantial assistance of wrongful activity and aided or abetted wrongful workplace conduct. Lynne Hermle, a nationally recognized trial lawyer in employment litigation, is a partner in the Silicon Valley office of Orrick, Herrington & Sutcliffe. Annie Prasad is an associate in the firm's employment practice group in Silicon Valley.