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Activision’s ‘Chump Change’ Deal Fails to End Harassment Woes

March 30, 2022, 9:00 AM

Legal experts say it’s too soon for Activision Blizzard Inc. to declare victory after securing an $18 million settlement with federal regulators over sexual harassment and discrimination allegations.

Activision still faces a host of challenges, including getting alleged victims to sign onto the settlement and implementing reforms to the satisfaction of the U.S. Equal Employment Opportunity Commission, in the face of an employee revolt and under a public spotlight from Microsoft Corp.‘s nearly $69 billion deal for the company.

And the settlement is unlikely to make it easier to resolve the host of remaining lawsuits, including from California’s Department of Fair Employment and Housing, and new allegations from victims being represented by prominent lawyer Lisa Bloom. DFEH has also vowed to challenge the EEOC consent decree before the U.S. Court of Appeals for the Ninth Circuit.

The hard work for Activision begins now, said attorney Ann Olivarius.

“Legally, Activision will have to clean up its act and pay the bills,” Olivarius said. “But at the end of the day, if it’s not enforced then it doesn’t mean anything, it’s just propaganda.”

Corporate attorney Rick Hoeg said that Activision will be relieved to have secured approval of the settlement, which was fiercely opposed by DFEH, but the impact is probably limited to the federal case.

“The company has been in trouble since last summer. $18 million doesn’t change anything monetarily for Activision, or for Microsoft, which was watching this all play out.”

Tough Decision for Victims

The settlement, approved Tuesday in California federal court, includes a victim compensation fund and commitments to implement workplace reforms

Dawn Knepper, a California attorney, said one important question is how many Activision employees will ultimately participate in the EEOC settlement.

In order to take home an award from the victims’ fund, employees must file claims detailing the specific instances of sexual harassment, pregnancy discrimination, and retaliation for which they’re seeking compensation.

For many victims, deciding whether to participate in the approved EEOC settlement or waiting to see how the DFEH case plays out will be a complicated decision.

“State law is extraordinarily more advantageous to the individual, in terms of damages and statute of limitations, but a lot of people are not necessarily going to be willing to wait for the battle of the DFEH case to reach a resolution,” Knepper said.

Knepper said the competing lawsuits from the agencies likely created confusion among employees.

“To me, it almost seems like the interests of the workers are getting lost in this administrative shuffle,” she said. “I don’t think a lot of them are going to understand the implications, but I think it will be a meager recovery if they take a payout now in comparison to if they hold out for the DFEH.”

Stephen Rich, a law professor at the University of Southern California, said the immense publicity over Activision and the worker revolt at the company might give some workers incentive to hold out.

“We also live in a #MeToo world, where employee interests are heightened by our sense that sex discrimination and sexual harassment aren’t just violations of economic rights but are violations of an individual’s dignity,” Rich said. “That may be a reason for a person to focus less on the immediate payout and more on making sure Activision is held accountable for the things that it did.”

Activision directed a request for comment to a statement from Tuesday.

“Our goal is to make Activision Blizzard a model for the industry, and we will continue to focus on eliminating harassment and discrimination from our workplace,” said CEO Bobby Kotick. “The court’s approval of this settlement is an important step in ensuring that our employees have mechanisms for recourse if they experienced any form of harassment or retaliation.”

EEOC in a statement Tuesday said the consent decree “not only provides monetary relief to potential claimants that were impacted by sexual harassment, pregnancy discrimination and related retaliation at Activision Blizzard throughout the United States, but also puts in place significant injunctive relief at Activision Blizzard to prevent and address discrimination, harassment, and retaliation.”

DFEH didn’t immediately respond to Bloomberg Law’s request for comment.

California Response

Also uncertain is how California’s top civil rights regulator, the DFEH, will respond. In September, DFEH, which also sued Activision, sought to intervene in the EEOC case to block the settlement, which it said released the company from state claims EEOC lacked standing to prosecute. The state agency unsuccessfully sought an eleventh-hour intervention from the Ninth Circuit to prevent the trial court from going ahead with the settlement hearing.

A lawyer for the agency said at Tuesday’s hearing that DFEH would appeal the merits of the consent decree to the Ninth Circuit. How fiercely DFEH pursues that fight and whether the appeals court steps in remain to be seen.

Apart from the regulators, the company must contend with several remaining suits, from investors over Activision’s handling of the sexual harassment allegations to other victims who have brought forward their own claims.

“Even if it shrinks the potential size of any judgment entered against Activision in the state’s case, litigation is expensive,” Rich at USC said of the settlement. “And it could drag out for some time, unless there’s also a deal in the works with the state.”

Activision’s legal woes are still growing. Last week, Los Angeles attorney Lisa Bloom sued the company on behalf of female employees who said they were subjected to harassment and retaliation. And on March 24, a Swedish state-run pension fund sued Activision in Delaware, alleging its planned acquisition by Microsoft is shortchanging investors.

Selling the Settlement

Olivarius said the monetary amount of the EEOC settlement, $18 million, is “chump change” to Activision, and that its biggest challenges are ahead, including internally, as it sells employees and Microsoft on its efforts to change its culture.

“The real challenge Activision has now is that you can have the best formal policies, but if the informal work culture contradicts them, then in force, they’re useless,” she said.

Successfully making those internal changes will likely be crucial if Microsoft wants to retain talent at the game maker after the acquisition, Olivarius added.

“Microsoft has a strong business interest in cleaning up Activision’s culture in order to avoid losing a substantial amount of talent because of it,” she said.

Hoeg was skeptical California regulators would be able to eventually intervene in the settlement and predicted the agency’s focus would shift to its own lawsuit filed in state court. He said he suspects Activision will try to slow the momentum on that lawsuit.

“I think they’d prefer to get this Microsoft deal done and essentially absolve themselves of running Activision Blizzard,” he said of the company’s leadership. "$18 million doesn’t change anything monetarily for Activision or the value for Microsoft.”

The legal wrangling is only starting, he said.

“Right now, well before anybody is winning in that case, it’s safe to say it would be messy.”

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