Update – March 28, 2011: Justice Bernadette Bayne held a hearing March 25, 2011 with counsel from both sides in the sexual harassment suit, Morales v. American Apparel. Judge Bayne initially indicated the case should go to arbitration and later said she’d review the additional documents. She gave no indication when she’d rule if the case can go to trial. On March 23,  Apparel chairman and CEO Dov Charney was hit with the second sexual harassment suit this month. Kimbra Lo, 19, a former sales associate, alleges she was sexually assaulted when she went to Charney’s LA home seeking to be rehired as a model and photographer.  Both Lo and Morales went on the Today Show to talk about their lawsuits. The company contends the relationships were consensual.

by Gael O’Brien

American Apparel finds itself once again in a familiar place — sued again for sexual harassment and creating a hostile work environment, because of the vulnerability its CEO’s philosophy of sexual freedom in the workplace creates for the publicly held company.

American Apparel_8705_Alyssa-NudeIn discussing a 2006 sexual harassment suit, founder, chairman and CEO Dov Charney expressed the belief that consensual sexual relationships in the workplace were appropriate: “I think it’s a First Amendment right to pursue one’s affection for another human being.”

Recently, Irene Morales, 20, sued Charney, 42, American Apparel, and its directors for about $250 million, alleging Charney forced her into sex acts when she was 18 and an employee. The company has accused Morales of extortion. A lawyer for the company dismissed the allegations, saying when Morales left the company and accepted severance, she signed a statement saying she had no claims against the company and agreed that any future claims would be addressed by confidential arbitration.  A judge has halted Morales’ suit until March 25, pending a decision on whether it should go to arbitration or trial.

Notwithstanding the distinction of being dubbed “American Apparel’s chief lawsuit officer,” Charney is a complex figure. His website, filled with photos of him and provocative shots he took of the company’s young models, tells the story of his immigrant family, religion, creating the company as a teenager, philosophy on sexual freedom, and politics. Passionate about immigration reform, proud his clothing is “made in America,” he pays his 10,000 workers – well above garment industry rate.

Charney owns 51.8 percent of the company and the board has thus far apparently gone along with his philosophy of sexual freedom. However, the company is no longer on solid financial footing.  Blame the recession or other factors, but it appears that sexy marketing isn’t selling American Apparel the way it did several years ago; stock prices have been dropping.

Among the questions Dov Charney’s philosophy raises is whether there really can be consensual sex in a workplace if both parties aren’t equal in status, salary and intention?

Is the term a delusion if one of the parties is the CEO? For example, how can both parties freely accept responsibility for the consequences of a relationship when one party has power over the other’s salary, promotion, or keeping the job?

If tone at the top encourages workplace sexual expression, what are the constraints to protect employees? American Apparels’ ethics policy talks about “promoting ethical conduct, including the handling of actual or apparent conflicts of interest between personal and professional relationships.”

So who decides if a conflict of interest has occurred between personal and professional relationships and if harm was done in a fleeting or more sustained expression of sexual interest? What about harm to bystanders who just want to do their job and are made uncomfortable by sexual innuendo and graphic language?

If you were doing a cost/benefit analysis of sexual drama (which is an inevitable byproduct of a sexually charged workplace) would the benefits come out ahead if everyone affected got to weigh in?

In interviews, Charney has tied the importance of sexual energy to creative energy on which he says the fashion industry depends. No argument about the value of released endorphins.

Interesting to note that many leaders have championed endorphin highs to stimulate creativity. Among dozens of examples, they set aside areas for ping pong, volleyball, or fitness equipment, or hold events recognizing employee achievements – few, if any of which, have resulted in litigation and loss of company and CEO reputation.

Every leader gets to figure out if what she or he is doing is working and what to change (before a board answers that question for them). Charney enjoyed the reputation as a wunderkind. Now the company is in a different phase facing financial and strategic challenges, as well as another lawsuit about its culture.

The irony of sexual freedom in the workplace is that it is about power, not romance. It often ends up exploiting those most vulnerable – the way, for example, immigrants have often been treated in some workplaces; it also gives ammunition to those who, seeing where a company has made itself most vulnerable, move in for their own kill.

Gael OBrien_ID_CropGael O’Brien is a Business Ethics Magazine columnist. Gael is a thought leader on building leadership, trust, and reputation and writes The Week in Ethics, a weekly column where this article was first published.

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