Diaz sued billionaire Elon Musk’s company over racial slurs and offensive graffiti at a Fremont, Calif., plant that for years has been accused of fostering a hostile work environment. While many race bias lawsuits never reach a jury, attorneys said Diaz’s case succeeded in part because he didn’t sign a mandatory arbitration agreement—contracts that have become widely used by companies to send legal claims to a private dispute resolution process.
Diaz’s win comes as shareholders activists are separately attempting to pressure Tesla to change its forced arbitration policies. The company’s board of directors is urging investors to vote down such a proposal at an Oct. 7 shareholder meeting.
The case—which likely will be appealed on the merits and the size of the award—also points to common evidentiary roadblocks that Diaz navigated to avoid dismissal of his harassment claims.
“This case is really unique in a lot of ways. This is by far the highest single-plaintiff discrimination verdict that I’ve ever seen,” said Travis Gemoets, an employment lawyer for Jeffer Mangels Butler & Mitchell LLP in Los Angeles. “Regardless of what happens on appeal, this is an eye-opener not just for Tesla, but businesses in general. If there is a culture of this ugly behavior it needs to be fixed.”
Neither Tesla nor its attorneys responded to requests for comment. In a blog post on the ruling, company Vice President Valerie Workman said the “facts don’t justify the verdict reached by the jury” and that the company has “come a long way from 5 years ago.”
High Legal Standards
Diaz was employed by a staffing agency that placed him at the Tesla factory. He claimed in his lawsuit that he was regularly subjected to the use of racially offensive terms and graffiti, including derogatory images of Black children and swastikas, leading to sleepless nights and weight loss. He said the company ignored his complaints.
Courts regularly grapple with when harassment is “severe” or “pervasive” enough for a lawsuit to reach a jury, and have issued divergent opinions on when racially charged language, graffiti, or the presence of nooses meet that standard.
The U.S. Supreme Court declined in May to revisit the issue, effectively leaving in place a ruling that threw out a Dallas hospital worker’s case because his allegations of racist graffiti, offensive verbal abuse, and swastikas didn’t satisfy the severe or pervasive threshold.
“Some courts around the country don’t find the use of the n-word and other racial harassment sufficient to let a case go to the jury,” said Brian Wolfman, a Georgetown University law professor who has represented workers in such cases. “Courts will say yes, it’s bad—the graffiti and racial epithets— but its not severe enough, usurping the role of the jury.”
Wolfman said the large verdict against Tesla, however, could signal to employers that they have to ensure their workplaces are as free as possible from racial harassment and similar oppressive conduct.
He said the jury’s punitive damages award, which was $130 million, sends a “signal of deterrence.”
Arbitration as Escape Hatch
While Diaz’s case drew a massive verdict, other race discrimination litigation has been kicked to arbitration, including similar ones against Tesla.
In one of the cases, the U.S. Court of Appeals for the Ninth Circuit held that a former Tesla employee, who brought race bias claims under the Civil Rights Act of 1866, had to submit to private dispute resolution because of an agreement he signed. An arbitrator found that the worker failed to prove his claims.
“In a jury, it’s not about one individual’s view,” said Larry Organ with the California Civil Rights Group, who represents workers in bias cases against Tesla, including a pending proposed class action. “I think when they looked at Owen Diaz’s case objectively, they saw a company that had knowledge of widespread racist conduct and numerous complaints that didn’t make it up the chain.”
The evidence in the case showed an extremely terrible workplace, but the widespread use of arbitration at Tesla could limit such cases from moving forward in the future, said Paul Bland, executive director of Public Justice, a nonprofit legal advocacy group.
Businesses and employment lawyers defend the use of arbitration as a speedier and less expensive process for resolving workplace disputes. Arbitration agreements are commonly used, but many large companies have eliminated them for harassment and discrimination claims. States have also tried to limit mandatory arbitration, to varying degrees of success.
‘Even the Playing Field’
Gemoets said arbitration still allows for an aggrieved party to vindicate his or her rights, and the employer pays the bills. He said the process can “even the playing field.”
Bland countered that, in Diaz’s case, the evidence showed a system that needed to change. “In arbitration, all of that would have been kept secret,” he said.
Arbitration in recent years has also caused the number of cases that go to trial—which have historically been low—to plummet even further, he said.
“Jury trials and class actions really discourage race discrimination in employment,” Bland said. “If employers know they could be held accountable to a jury they would be much more careful and train employees in more effective ways.”
Organ said since Diaz filed his race discrimination lawsuit in 2017, Tesla has required contractors and employees to sign non-disclosure agreements, class action waivers, and arbitration agreements. The company didn’t respond to a request for comment on Organ’s claim.
“It’s an effort to undercut the class action,” Organ said. “Civil rights cases should never be allowed to go to arbitration.”