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Should a Family Business Investigate Itself?

When a harassment or discrimination claim arises at a family business, the company must conduct an investigation just like any other company.  This investigation, however, is often harder for a family business when the alleged harasser is a member of the family.  In essence, the family is forced to investigate itself. Aside from causing family strife, this can lead to missteps and difficulty remaining objective.  A company in New York learned this lesson the hard way.  Don’t let it happen to you.

Conducting Your Own Harassment Investigation Has Challenges

In Dillon v. Ned Management, a case out of the federal court in Brooklyn, New York, a secretary accused Yacov Fridman of making unwanted sexual advances towards her and touching her buttock.  Ned Management is a family run management services organization for doctors.  Mr. Fridman was the common law husband of Ned Management’s bookkeeper and the stepfather of the owner. 

Fridman allegedly told the secretary “you have nice titties” and then offered her money to see them.  Five days later, Fridman waved four $100 bills in the secretary’s face and said “I know you need some extra cash … this could be yours.” 

On a separate occasion, the secretary assisted Fridman with putting items in his car and he grabbed her buttock.  Following this incident, the secretary complained to the owner/stepson of Fridman.  The owner responded by saying “better get an attorney.”  The owner then conducted a 30 minute investigation where he asked multiple employees if they saw Fridman touch the secretary.  Notably this sole question was ineffective because the secretary and Fridman were outside alone when the alleged incident happened.

A few days later, the secretary received her paycheck and she was not paid for the day Fridman allegedly grabbed her. She complained and was informed the instruction came from the bookkeeper, the common law wife of Fridman.  Days later, she was fired for consistent lateness although she had received no prior warning. 

The secretary brought suit against Ned Management and several of the Company’s leaders for various federal, state, and city employment discrimination law violations.  The Company moved to dismiss the case, and the Court denied the motion. 

Among other failings, the Court noted the Company could not rely on the Faragher/Ellerth defense because it conducted an incomplete thirty minute investigation that was quite possibly biased.  The Faragher/Ellerth defense is a valuable tool for employers in hostile work environment cases such as this one.  In order to win, an employer must show (1) it exercised reasonable care to prevent and correct promptly any discriminatory harassing behavior and (2) the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise. 

Moreover, the Court held the secretary could show her termination was pretextual because the Company failed to present any credible evidence it had told her lateness was a problem prior to her termination.

Key Takeaways

This case demonstrates the classic tensions family businesses have when faced with allegations of sexual harassment.  Here, the stepfather of the Company’s owner was the accused harasser and his stepson conducted the investigation.  No good came from any of this because, as the Court found, the investigation was biased and incomplete.

A key takeaway here for a family business is when a family member is accused of harassment or other wrong doing, it is in the Company’s best interest to employ an outside consultant or attorney to conduct the investigation.  We recommend use of a competent labor and employment attorney to conduct the investigation because then the report is protected by the attorney-client privilege.  This is not the case if an HR consultant conducts the investigation.  Had the Company done a prompt, thorough investigation, and taken appropriate remedial action, it could have won the case.   

Brody and Associates regularly provides training and counseling on maintaining a harassment free environment and on employment law issues in general. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.