Tesla Case Highlights Importance of Prompt and Thorough Workplace Investigations
Background
Many commentators were shocked by the recent decision in a racial discrimination case brought against Tesla (Diaz v. Tesla, Inc.). On October 4, 2021, based on the jury’s findings, a federal judge ordered the company to pay almost $137 million in damages. The plaintiff, Owen Diaz—a Black former contractor who was hired through a staffing agency to perform work for Tesla—argued that Tesla’s work environment had been rife with racism.
Diaz alleged that, during his time working as an elevator operator at Tesla’s facility in Fremont, California, he was confronted with racist slurs and racist graffiti. He described the environment as “straight from the Jim Crow era.” Diaz raised his concerns with supervisors at both Tesla and at the contracting companies that had hired him, but according to Diaz, they didn’t take sufficient action.
Legal commentators noted that the damages assigned in this decision may have been the largest ever in an individual racial discrimination employment case. So, what does this landmark decision mean for employers?
Lessons for Employers
This case underscores the necessity of building workplaces where there is no tolerance for racism, sexism, homophobia, transphobia, ableism, etc.
Another lesson can be gleaned by examining the way the court divided the damages: $6.9 million in emotional damages, and $130 million in punitive damages. While the $6.9 million sum certainly acknowledges the emotional distress Diaz described, most of the damages were earmarked to hold Tesla responsible for its alleged failure to act. Punitive damages are meant to punish the company for egregious conduct—and to deter it, and other employers, from engaging in similar conduct in the future. The unusually high punitive damages awarded in this case appear to send a clear message to employers: that they will be held accountable for failing to take meaningful action against workplace discrimination.
A Tesla representative argued that the company had taken action, saying that two contractors had been fired and another suspended over Diaz’s complaints, and that racist graffiti had been removed. However, Tesla itself cited a “bungled investigation” as part of the reason additional and more appropriate action wasn’t taken in this case.
The court’s decision—and its breakdown of the damages—is a reminder to employers that ignoring employee discrimination complaints is simply not an option, and that sometimes action an employer does take may later be viewed as insufficient. With this in mind, it is wise for employers in these situations to promptly bring in an independent investigator to speak to employees, gather facts and testimony from witnesses, and provide the employer with data needed to determine next steps. In addition to offering information essential to the improvement of workplace culture, a thorough investigation also leaves a record of an employer’s good-faith effort to address the allegations, which can prove enormously important if the matter ever goes to court.
While Tesla will likely appeal this case and may ultimately end up paying far less than $137 million in damages, employers should take note of the court’s warning. This case, and its unprecedented punitive damages, should serve as a crucial reminder that when employees raise complaints, employers must act with swiftness and seriousness to investigate and take immediate, remedial action. Doing so is essential—to protect companies against liability, and to build workplaces where all employees have what they need to thrive.
Author: Diana Maier, Founding Partner and Marta Manus, Senior Attorney
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