Small businesses have typically been exempt from Texas and Federal labor laws addressing discrimination and retaliation because, with a few exceptions, the minimum threshold for such laws to apply was 15 employees.  On September 1, 2021, that will change dramatically with respect to sexual harassment claims, which means small businesses will need to re-evaluate their legal liability in employment settings.

The Texas legislature recently passed two bills that  Governor Abbott signed into law and become effective September 1, 2021.  The first, and the most important and dramatic change is the enactment of Senate Bill 45. SB45 defines “employer” for sexual harassment purposes as any person or entity who employs “one or more” employees.  SB45 goes even further to create individual liability for those who act “directly in the interests of an employer in relation to an employee.”  While this language is vague and will have to be interpreted by the courts, it could arguably apply to business owners, managers, officers, supervisors, human resource directors, and even other employees who exercise some control over another employee’s work.  This interpretation would mount a fundamental change in discrimination laws as such laws have generally been held not to apply to individuals. SB45 also seems to alter the type of remedial action by specifically requiring “immediate” action to remedy the sexual harassment as opposed to “prompt” action which Texas courts have previously required.

Because of the 15-employee threshold, many small businesses have not diverted their limited resources to implementing employee handbooks, employee training, or other equal employment opportunity (EEO) related protections. In addition, small businesses have not devoted time to establish procedures for investigating, handling, and remedying sexual harassment complaints.   However, because such items and procedures may provide defenses to employers, small businesses would be wise to consult an attorney about the steps to take to protect themselves in response to this new law.

A sexual harassment claim can generate substantial liability for any business and could devastate a small business, especially a start-up business.

Many larger businesses have addressed potential exposure to discrimination laws, particularly sexual harassment, by obtaining employee practices insurance. Now small businesses need to consider whether an employment practices policy is appropriate for their business.  It is unclear how the insurance companies will respond to this new law.  While managers were arguably covered under such policies previously, there was little risk of a judgment against an individual under the labor laws. Employment practices insurance will likely be more expensive as insurance companies factor in additional defense and indemnity costs.

The second employment law passed by the Texas Legislature is House Bill 21.  HB 21, effective September 1, 2021, carves out sexual harassment claims from other discrimination laws and extends the deadline for victims to file a charge of discrimination from 180 days to 300 days (which is in line with  federal law).  While this may not seem to be a significant change, plaintiff’s lawyers routinely prosecute discrimination claims under Texas state law rather than the federal counterpart and allowing additional time for a charge of discrimination expands the potential pool of plaintiffs.

Rapp & Krock has advised start-ups and small and medium-sized businesses in their legal rights and obligations in employment matters for over a decade, paying particular attention to the special budgetary constraints of such businesses.  If you have questions regarding these new Texas laws, please feel free to contact the attorneys at Rapp & Krock to discuss such employment related matters.