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Liability for work related matters can occur for many reasons. Often times, it results out of ignorance of the law and lack of investment in understanding the legal requirements one faces as an employer hiring other staff and managing that staff. Typically large business organizations invest substantial resources in education, personnel and training to prevent liability in the office setting and have substantial insurance to protect against catastrophic loss. Small business owners may not have the same resources or realize the potential for significant liability exposures in the office arena. As such, they may not invest proactively in similar risk management and insurance to protect against such liability exposure as their larger organization counterparts. One major area of office setting liability results from unwanted and inappropriate sexual overtures between staff, or staff and management in an office setting.
Sexual harassment is a major area of liability concern for small and large corporations and is a violation of Section 703 of Title VII of the Civil Rights Act.  Such harassment occurs when an employee is subjected to unwelcome  sexual advances or other verbal or physical conduct of a sexual nature and such conduct is made either explicitly or implicitly a term or condition of an individual's employment.  Employers are only strictly liable for unlawful harassment by supervisors .  However, an employer may also be responsible for the acts of fellow employees and non-employees . 
The EEOC's guidelines defines two types of sexual harassment: quid pro quo and hostile environment. Quid pro quo harassment occurs when "submission to or rejection of such conduct by an individual is used as the basis for employment decisions affecting such individual."  Hostile environment harassment can occurs when "such conduct has the purpose or effect of unreasonably interfering with an individual's work performance or creating an intimidating, hostile, or offensive working environment." 
Employers are not vicariously liable for all acts of sexual harassment by supervisors. Rather, an employer is strictly liable for sexual harassment by a supervisor that results in a tangible employment action. A tangible employment action is represented by "a significant change in employment status or... benefits."  Examples of such changes include: hiring, firing, failure to promote, undesirable reassignment and changes in compensation.
Where no tangible employment action has occurred, an employer may avoid liability or limit damages if it can establish the following: 1) it exercised reasonable care to prevent and correct promptly any harassing behavior (evidenced by the implementation of policies and enforcement mechanisms that support the employer's no-tolerance stance on sexual harassment) and 2) the employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise (where such failure is not supported by a reasonable fear of retaliation or perception that the complaint process is ineffective). 
An employer is also subject to liability for sexual harassment in the workplace by fellow employees and non-employees. An employer is responsible for such acts when it knows or should have known of the conduct, unless it can show that it took immediate and appropriate corrective action. 
With respect to non-employees, an employer may also be held liable where the employer knows or should have known of the occurrence of some unlawful conduct and fails to take immediate and appropriate corrective action. In the case of non-employees, the EEOC guidelines take into consideration the extent of the employer's control and any other legal responsibility which the employer may have with respect to the conduct. 
Prevention is the best tool for an employer to eliminate sexual harassment in the workplace and shield itself from liability. Prevention can be achieved through sound policies and mechanisms that enforce an employer's stance against sexual harassment or adverse treatment of employees who report such harassment. In addition to implementing written policies, employers also have an obligation to screen, train and monitor individuals they employ as supervisors and managers. Those individuals must be well-versed in the company's sexual harassment policy, particularly as to who is designated to take complaints, how to document incidents and how to record corrective actions taken by the employer. Small businesses can achieve these goals without implementing a formal written policy. Such an employer can establish employee awareness through informal mechanisms, such as routine announcements of a no-tolerance sexual harassment stance at staff meetings.
Regardless of the size of the business, however, every employer must ensure that all complaints are investigated and that immediate and appropriate corrective action is taken. An effective investigation will entail a prompt, thorough and impartial examination of witnesses and parties involved in the incident (where the allegations have been denied). Intermediate measures, such as schedule changes, may also be necessary in the event that the investigation will last for an extended period of time.
Depending on the circumstances involved in each sexual harassment case, appropriate corrective action can range from oral or written reprimands to discharge of the harasser. An employer may also have to take measures to accommodate the victim such as apologizing, monitoring treatment by other employees, or restoration of leave taken because of the harassment. In all respects, sexual harassment is a highly sensitive issue and any report of such activity, by an employee or non-employee, should be taken seriously and investigated promptly.
 Section 703(a)(1) of Title VII of the Civil Rights Act provides: "It shall be an unlawful employment practice for an employer...to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex, or national origin[.] 42 U.S.C. § 2000e-2(a)(1) (applies to employers with 15 or more employees).
 Title VII does not proscribe all conduct of a sexual nature in the workplace, just that which is unwelcome. EEOC Policy Guidance on Current Issues of Sexual Harassment (3/19/90).
 See 29 CFR 1604.11(a)(emphasis added).
 See generally, Burlington Industries, Inc. v. Ellerth, 524 U.S. 742 (1998)(emphasis added).
 See 29 CFR 1604.11(2006) (emphasis added).
 29 CFR 1604.11(a)(2).
 29 CFR 1604.11(a)(3). (EEOC Policy Guidance on Current Issues of Sexual Harassment , p. 2)(3/19/90).
 Burlington Industries, Inc. v. Ellerth, 524 U.S. at 761.
 EEOC Enforcement Guidance: Vicarious Employer Liability for Unlawful Harassment by Supervisors (6/18/99, p/ 3 of 18).
 29 CFR 1604.11(d).
 29 CFR 1604.11(e).