Discrimination, Harassment, and Retaliation Suits: What SMBs Need to Know

For small and mid-sized businesses (SMBs), lawsuits involving discrimination, harassment, or retaliation are among the most damaging. They don’t just create financial exposure—they can severely harm reputation, employee morale, and client trust. In New York, where both state and city laws impose some of the broadest worker protections in the nation, SMBs must be especially vigilant.

Here’s a deep dive into what these suits involve, why they’re so costly, and how SMBs can protect themselves.

1. Understanding the Claims

Discrimination

Occurs when an employee is treated unfairly because of a legally protected characteristic. Under federal law (Title VII, ADA, ADEA), and under New York State and City Human Rights Laws, these protections include:

• Race, color, national origin, or ethnicity

• Sex, gender identity, or sexual orientation

• Disability

• Age

• Religion

• Marital or familial status

• Military status

Harassment

A form of discrimination that involves unwelcome conduct creating a hostile or offensive work environment. Examples include:

• Sexual harassment (unwelcome sexual advances, comments, or conduct)

• Racial slurs or offensive jokes

• Bullying tied to a protected characteristic

Retaliation

Occurs when an employer punishes an employee for engaging in a legally protected activity—like reporting harassment, filing a discrimination complaint, or participating in an investigation. Retaliation claims are among the most common because they can arise even if the underlying discrimination claim fails.

2. The Legal Landscape in New York

• Federal Law: Title VII of the Civil Rights Act, Americans with Disabilities Act (ADA), and Age Discrimination in Employment Act (ADEA) provide baseline protections.

• New York State Human Rights Law (NYSHRL): Applies to all employers, regardless of size, and offers broader protections than federal law.

• New York City Human Rights Law (NYCHRL): One of the most employee-friendly laws in the country. Courts must construe it liberally in favor of employees.

The bottom line: even very small businesses can face liability in New York.

3. Why These Claims Are So Costly

• High damages: Employers may be liable for back pay, front pay, compensatory damages, punitive damages, and attorney’s fees.

• Reputational harm: Lawsuits often become public, damaging relationships with customers and potential hires.

• Employee morale: A workplace culture tainted by unresolved claims can lead to higher turnover and lower productivity.

• Regulatory scrutiny: Complaints filed with the EEOC, New York State Division of Human Rights, or the NYC Commission on Human Rights can trigger investigations.

4. Common Triggers for SMB Litigation

• A supervisor makes inappropriate comments and management fails to intervene.

• An employee is denied promotion or terminated under circumstances suggesting bias.

• A worker reports harassment, and shortly after, their hours are cut or they’re reassigned.

• Policies are inconsistently applied, creating perceptions of unfair treatment.

5. Prevention Strategies

Establish Clear Policies

• Draft anti-discrimination and anti-harassment policies in writing.

• Ensure policies comply with federal, state, and NYC laws.

Training

• Train supervisors and employees regularly on recognizing and reporting inappropriate conduct.

• Make training interactive and specific to your workplace culture.

Complaint Channels

• Provide multiple avenues for employees to report misconduct (HR, managers, anonymous hotlines).

• Assure employees that retaliation will not be tolerated.

Investigate Promptly

• Take all complaints seriously.

• Document investigations thoroughly.

• Impose corrective action where appropriate.

Lead by Example

• Managers set the tone. Professional, respectful behavior must come from the top down.

6. Responding to a Claim

• Do not retaliate: Even subtle changes to an employee’s role after a complaint can trigger liability.

• Preserve evidence: Save emails, personnel files, and communications.

• Engage legal counsel early: Counsel can guide investigations, defend regulatory complaints, and negotiate resolutions.

• Consider settlement: Litigation is costly and unpredictable. Early resolution can sometimes be the most cost-effective path.

7. Case Example

In Zakrzewska v. The New School (2010), New York’s highest court made it clear that employers in New York City face stricter rules than under federal law. Normally, under federal law, an employer can argue: “We had good anti-harassment policies and a reporting system, and the employee never used them.” This is called the Faragher-Ellerth defense.

But the court said that defense does not apply under the New York City Human Rights Law (NYCHRL). That means even if an employer has policies and the employee doesn’t report the harassment, the employer can still be held responsible.

Why it matters: NYC law is more protective of employees than federal law. It’s easier for employees to succeed in harassment claims, and harder for employers to avoid liability simply by pointing to their policies. An employer may, however, still rely on Faragher-Ellerth-type evidence to reduce civil penalties and punitive damages, even though it cannot avoid liability entirely.

Final Thought

For SMBs, discrimination, harassment, and retaliation suits are not abstract risks—they’re very real threats that can destabilize a business. The best defense is prevention: clear policies, robust training, and a workplace culture of respect. But when claims do arise, responding strategically and with legal guidance is essential.

This blog is for informational purposes only and not legal advice. If your business faces a discrimination, harassment, or retaliation claim, consult with experienced employment counsel to protect both your company and your employees.