Because Americans spend more time at the office than practically any other place, coworkers are bound to forge close relationships. And often, these friendships can blossom into something more.

According to a 2003 American Management Association survey, 12 percent of managers admitted to dating a subordinate. These are the relationships that are risky for business. A scorned subordinate might decide the relationship wasn’t consensual after all and file a harassment claim. Other employees might feel their coworker is getting special attention and allege favoritism.

“Managers who are having affairs with employees who report to them put their careers in the subordinate’s hands,” said Nick Linn, labor and employment manager at Electronic Data Systems Corp. “If the subordinate makes an allegation such as rape, then the manager and the company are in a very bad place. Maybe the lawsuit is salvageable, but someone will likely be terminated.”

Linn made this statement at a recent Martindale-Hubbell Counsel to Counsel forum in Dallas titled “Manage With Care: Labor and Employment Issues.” Forum participants, which included both law firm and in-house attorneys from the Texas area, discussed the legal risks associated with office romances and the best practices for handling these relationships.

Jilted Hearts

Office romances not only harm the individuals, but the entire company.

In early 2005, former Boeing CEO Harry Stonecipher admitted to carrying on a relationship with a coworker, an act that violated company policy. The fallout from his tryst not only caused him to resign, but also gave the company considerable negative press.

But negative press should be the least of in-house counsel’s worries. Recent lawsuits arising from workplace relationships suggest that liabilities in such situations abound.

“There’s the possibility the relationship is not consensual, the subordinate may feel uncomfortable telling the supervisor he or she isn’t interested, and there are issues of favoritism and harassment,” said Elizabeth Moore, a partner at Nixon Peabody in New York.

Not only do in-house counsel need to worry about being slapped with a suit from a subordinate, they have to take into account that a subordinate’s coworkers may also be able to claim a cause of action. This is exactly what happened in the landmark California case Miller v. Department of Corrections.

In this case, a prison warden allegedly carried on affairs with three subordinate, female employees. Two coworkers of the warden’s paramours alleged that he practiced favoritism, granting his lovers preferential transfers and promotions. They filed suit in 1999 alleging sexual harassment in violation of the California Fair Employment and Housing Act. The Supreme Court of California ruled in favor of the plaintiffs in 2005 and remanded the case to the appellate court.

“When such sexual favoritism in a workplace is sufficiently widespread, it may create an actionable hostile work environment ?? 1/2 ,” the court said.

Asking Questions

According the forum participants, if the company believes one of its managers is engaged in an inappropriate relationship, in-house counsel should spearhead an internal investigation.

However, prior to investigating, general counsel should ensure that the allegation is credible.

“Investigating an unsubstantiated allegation could even be worse for the morale of a company than an improper relationship,” said Tom Ryder, vice president and associate GC at Alcon Laboratories Inc. “You want to make sure you have something credible, but on the other hand, you don’t want to be accused of sweeping something under the rug.”

According to the panelists, there are a number of steps in-house counsel can take to determine the credibility of an allegation. One method that arouses minimal suspicions is to ask HR to conduct a general audit.

“When we don’t have a lot of information, we may have HR conduct a departmental audit and ask if there are any issues, problems or complaints about the organization,” Linn said.

This way, a company can confirm the authenticity of a complaint and move to the next step of the investigation process–the formal investigation. It is this step where in-house counsel need to appoint a person or team to lead the inquiry. The investigation leader is typically a member of legal or HR.

“The first thing to do is go to the source, the supervisor, because you don’t want the gossip mill to start churning,” Moore said. “You may want to additionally go to the subordinate as well. If you can’t get either party to admit to such a relationship, you may find a coworker or a colleague is aware that there appears to be such a relationship.”

Once such a relationship is confirmed, in-house counsel have several options. If the parties initially lied about the relationship, there may be cause for severe action. But if they are honest and company policy doesn’t explicitly prohibit such relationships, then in-house counsel should ensure that the subordinate no longer reports to that supervisor.

There is also a third option, one that can help shield a company in the event of litigation–the love contract.

Love Contract

Consensual relationship agreements, commonly called “love contracts,” are one method some forum participants said they have used to ensure a soured relationship doesn’t turn into a legal liability for the company.

“When the lawyers are concerned that an intraoffice relationship may turn bad, they get the two parties to put in writing that the relationship is consensual, that neither person has been subjected to any coercion and that neither party is being harassed,” said Elizabeth Deardoff, senior labor and employment attorney at Electronic Data Systems Inc. “Also, within the agreement, it specifies that if the relationship ever changes, they have to go to the appropriate department, such as HR, to report it.”

Though not legally binding, companies can use love contracts in court as evidence to bolster their defense in a harassment claim that arises out of the office romance.

“Love contracts are probably not an automatic bar to a sexual harassment lawsuit, but they’re Exhibit A at the deposition,” said Ryan Griffitts, a partner at Thompson, Coe, Cousins & Irons.

And that is as much as you can hope for.

“We are fooling ourselves if we think prohibiting such relationships will make them go away,” Moore said. “People will get into these relationships even if they are not condoned. Counsel need to have a plan to address the issue.”