California Wants to Crack Down on Sexual Harassment by Venture Capitalists

October 17, 2017
Joseph E. Abboud

A string of recent scandals in Silicon Valley has put a spotlight on a serious problem. Women attempting to break into the tech start-up world face pervasive sexual harassment from the male-dominated venture capitalist industry, being forced to put up with demeaning, offensive, and possibly dangerous behavior, or risk losing the necessary funds to launch their businesses.

Venture capitalists in California raised more than $27 billion in 2016, and any gender-based barriers to access those funds can cause extreme inequality in the tech industry. What may come as a surprise to many people is that there are few legal protections against sexual harassment by investors. While individuals seeking traditional loans or credit from banks and other financial institutions may have protections from discrimination such as the Equal Credit Opportunity Act, those rules may not apply to investments by venture capitalists.

Laws prohibiting workplace sexual harassment do not cover these venture capitalist-entrepreneur harassment situations because venture capitalist relationships typically lack the indicia of an employment relationship. Even though the imbalance of power between a venture capitalist and entrepreneur resembles the employer-employee relationship – the employee/entrepreneur may lose her livelihood if she spurns the sexual advances of her employer/investor – federal and state anti-harassment laws have historically been limited to the employment context. California is trying to buck this trend, introducing legislation that may serve as a model for other jurisdictions looking to correct the imbalance of power and offer women entrepreneurs some legal protections as they seek to compete in the business world.

Holding Investors Accountable for Sexual Harassment

The new bill making its way through the California legislature – Senate Bill 224 – seeks to amend an already existing law, Section 51.9 of the Unruh Civil Rights Act. The Unruh Civil Rights Act was passed in 1959 to expand protections against discrimination into “all business establishments of every kind whatsoever.” Section 51.9 currently empowers victims of sexual harassment to bring claims against their harassers in circumstances where there is a “business, service, or professional relationship” between the parties, and the victim of harassment is unable “to easily terminate the relationship.” Similar to laws preventing sexual harassment against employees, the Unruh Civil Rights Act only prohibits sexual harassment that involves conduct “of a sexual nature or of a hostile nature based on gender” that is “unwelcome and severe or pervasive.”

Section 51.9 gets at the crux of the dynamic that emboldens harassers: there is a business or professional relationship between the victim and perpetrator and, due to the power the perpetrator wields over the victim, the victim cannot easily end the relationship to escape the unwelcomed harassment. The law lists many examples of the sort of individual that is in a position to exploit such a power dynamic, including doctors, lawyers, landlords, and teachers. Senate Bill 224 seeks to amend the law by adding one word, “investor,” to the list of examples. If Senate Bill 224 is eventually passed by the California legislature and signed into law by the governor, this one small word may impact the movement of billions of investment dollars. If venture capitalists know that they can no longer exploit women entrepreneurs with impunity, more women entrepreneurs might gain access to funding and take strides to counteract the gender imbalance in Silicon Valley.

California Leads the Nation by Example

Although this law will offer much-needed protection to entrepreneurs in California, the rest of the country will continue to lag far behind. Other legislatures that want to empower women business owners and protect their constituents from sexual harassment in the business world should look to Section 51.9 of the Unruh Civil Rights Act and Senate Bill 224 as models.

As more stories reveal the longstanding, systemic sexual harassment in male-dominated industries – from Silicon Valley to Fox News to Harvey Weinstein – lawmakers will hopefully feel pressure to pass laws that make it easier for victims to come forward and seek redress for the harms that they have silently endured for too long.

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