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Tesla Racism Suit Shows Musk’s Willingness to Take on Regulators

Feb. 11, 2022, 4:28 PM

A California state lawsuit alleging widespread discrimination and harassment against Black factory workers has drawn Tesla Inc. into another high-profile fight with regulators.

The company called the lawsuit “misguided” and said it would ask a court to pause the case even before the California Department of Fair Employment and Housing had filed the complaint.

Tesla is no stranger to playing hardball with regulators. CEO Elon Musk has feuded with the Securities and Exchange Commission for years, and on Monday the agency subpoenaed the company yet again, this time over its compliance with a settlement regarding Musk’s communications about the company.

Lawyers and industry watchers said early indications are that the company will likely put up a fight against the DFEH lawsuit, pointing to Tesla’s long history of regulatory clashes and its current push to undo a $137 million verdict in a separate racial discrimination suit.

“We all know a bit about what Elon Musk is like,” said Anthony Oncidi, co-chair of the Labor & Employment Law Department at Proskauer Rose LLP in Los Angeles.

“It sounds to me like his first instinct is to fight. And this suit with the DFEH may not be an exception.”

Racism Allegations

The DFEH lawsuit, filed Feb. 9 in Alameda County Superior Court, describes “pervasive racial harassment,” at Tesla’s plant in Fremont, Calif.

The complaint described a “racially segregated” workplace, and detailed offensive language used or witnessed by supervisors and managers, as well as racist graffiti in bathrooms, the break room, and on machinery. Tesla turned a blind eye to complaints by Black workers about those conditions, the complaint alleges.

The company said it “strongly opposes all forms of discrimination and harassment and has a dedicated Employee Relations team that responds to and investigates all complaints,” in a Wednesday statement ahead of the lawsuit.

The Fremont factory has a “majority-minority workforce and provides the best paying jobs in the automotive industry to over 30,000 Californians,” it added.

But the number of lawsuits around the factory is noteworthy, Oncidi said.

“There’s clearly something going on at that Fremont plant that is attracting the attention of plaintiffs lawyers and regulatory agencies that is not common for most large companies,” he said. “I have not seen this intensity of litigation against a single employer in a very long time.”

Tesla didn’t respond to a request for comment. DFEH directed a request for comment to the complaint.

‘They Fight Forever’

The agency’s suit is the most recent alleging racial or sexual discrimination and harassment at the Fremont plant. In October, Tesla was ordered to pay a stunning $137 million award to factory worker Owen Diaz, who said he was regularly subjected to racially offensive terms and graffiti.

But Tesla has contested the verdict, asking the U.S. District Court for the Northern District of California to set it aside and calling it “without precedent in U.S. anti-discrimination law.”

The verdict “bears no relationship to the actual evidence at trial,” the company said. It is awaiting Judge William H. Orrick’s decision.

Despite the enormity of that verdict, Tesla failed to address the problems at the plant and brought on the DFEH action, said civil rights attorney Larry Organ, who represents Diaz in the federal suit.

“The reason Tesla is now facing the DFEH, a class action, and other cases, is because they haven’t taken responsibility for ending the harassment,” he said.

“Tesla knows now what can happen if they don’t take affirmative steps to stop racism at the plant,” Organ added. “But whatever they say they’ve done, it hasn’t stopped the conduct from continuing.”

And he doesn’t see Tesla backing down as litigation progresses.

“With other employers, if they take a combative response to an agency, it’s usually just to get a lay of the land,” he said.

But doesn’t seem to be Tesla’s strategy. “They fight forever,” Organ said. “They try not to produce documents that are relevant to your case. They appeal on things that they should not be appealing on. It’s all about delay.”

Combative History

The California DFEH isn’t the first regulatory agency with which Tesla has gone head to head, with Musk sometimes in a central role.

In 2018, Tesla and Musk reached an agreement with the SEC to settle fraud charges over his claims he would take the company private. The settlement saw Tesla and Musk split a $40 million penalty and implement controls to oversee Musk’s tweets.

But Musk has continued to criticize the agency and tweet about his company. On Feb. 7, the SEC subpoenaed Tesla for information on how it oversees Musk’s communications.

In its disputes with another federal regulator, the National Highway Traffic Safety Administration, however, Tesla has eventually agreed to safety recalls on its cars. On Feb. 10, Tesla announced it was recalling over 500,000 cars to address safety issues with the “Boombox” feature.

Legal Ramifications

The new regulatory fight pitting Musk and Tesla against California brings the prospect of even more legal trouble for the company, and comes as investors are paying more attention to workplace issues.

“Companies have to be very careful about the statements they make in defense of these kinds of claims,” said Jodi Short, law professor and Associate Dean for Research at the University of California, Hastings College of Law.

“These sorts of issues are becoming more and more material because investors of late have been demanding that companies treat their workforce better.”

Organ said the DFEH suit was a game-changer for employees whose complaints are often forced into arbitration.

“All of those people who were subject to arbitration agreements now have the possibility of having their claims decided in court,” Organ explained. “That’s a really good thing, because the chances of a Black person getting justice in court are much higher than getting justice in arbitration.”

Beverly Hills civil rights attorney Stephen King said existing class and individual suits over discrimination and harassment could also bolster DFEH’s own litigation.

“With the recent verdicts against Tesla, the DFEH could use that as a baseline to issue significant fines against Tesla,” King said in a statement.

But a protracted fight with DFEH could be different than the battles Tesla and Musk have waged in the past, said Short. DFEH enforcement actions tend to be driven by personal claims, which can draw a public spotlight.

“That makes it a little trickier for companies to be super combative with the agency because you have these concrete personal stories that are driving the enforcement action,” Short said.

“DFEH sees its mission as the protection of employees, and it doesn’t care what happens to shareholders, or if Tesla stock tanks tomorrow as a result of the suit.”

To contact the reporter on this story: Maeve Allsup in San Francisco at mallsup@bloomberglaw.com

To contact the editors responsible for this story: Meghashyam Mali at mmali@bloombergindustry.com; Andrew Childers at achilders@bloomberglaw.com