Tesla Racial Bias Case: Elon Musk led firm steals Activision Blizzard playbook

A turf war between federal and California workplace civil rights agencies, who ran dueling discrimination probes into Activision Blizzard and Tesla, is giving companies a playbook for creating regulatory chaos.

| Updated on: Aug 22 2022, 11:55 IST
The Tesla development also comes as California’s DFEH—which has stood out among state regulators as a fervent enforcer of workplace civil rights.  (via REUTERS)
The Tesla development also comes as California’s DFEH—which has stood out among state regulators as a fervent enforcer of workplace civil rights.  (via REUTERS)

A turf war between federal and California workplace civil rights agencies, who ran dueling discrimination probes into Activision Blizzard Inc. and Tesla Inc., is giving companies a playbook for creating regulatory chaos and fighting back against agency actions.

Legal observers say Tesla, which disclosed it was the subject of parallel investigations over racial discrimination by the U.S. Equal Employment Opportunity Commission and the California Department of Fair Employment and Housing, is already taking a page from the tactics of Activision, which pushed back on the state agency before finalizing a sexual harassment settlement with the EEOC over the objections of California.

“I think the biggest implication of the Activision case is that it gives a playbook for a company to contest whichever agency it isn't happy with,” said University of Oregon law professor Elizabeth Tippett. “Tesla immediately saw that, based on the Activision precedent, they might gain an advantage by trying to present or exacerbate conflict between the agencies.”

The Tesla development also comes as California's DFEH—which has stood out among state regulators as a fervent enforcer of workplace civil rights thanks to the state's more protective employment laws—is facing a shakeup at its highest levels. California Gov. Gavin Newsom (D) recently fired the agency's chief counsel, Janette Wipper, and the assistant chief counsel, Melanie Proctor, resigned in protest.

Legal scholars say the apparent turmoil between the DFEH and the EEOC over the prosecution of high-profile cases may give companies like Tesla a litigation strategy for avoiding potentially high-dollar state law claims by fighting California regulators and looking for a deal with the federal government.

Following Activision's Lead

The DFEH sued Activision in Los Angeles Superior Court in July 2021, alleging a pervasive culture of sexual harassment that reached the highest levels of leadership. The litigation turned contentious with the state agency seeking police records on Activision executives and accusing the game maker of employing a “scorched earth litigation playbook” to contest the suit.

Activision fired back, calling the claims “distorted” and alleging an effort to “harass” and “embarrass” the company, before eventually settling with the EEOC for $18 million. DFEH fought that settlement, claiming it undercut its own state harassment claims, and said it will appeal.

Tesla has appeared to take a similar approach to the DFEH's suit alleging racial discrimination at its Fremont, Calif., plant, by highlighting the divide between the regulators. A blog post on the Tesla website Feb. 9 called the lawsuit “misguided,” and an April 18 filing accused the state agency of using litigation as a “bullying tactic” to advance its turf war with the EEOC.

“DFEH ignored its statutory obligations and rushed to file suit against Tesla... perhaps out of fear that the EEOC would be the first to settle with Tesla,” the auto maker said in the April filing.

“I can totally see why Tesla would want to take a page from the Activision playbook,” said Lauren Teukolsky, founder and owner of plaintiffs' firm Teukolsky Law, who said companies facing multiple suits may look for the best settlement. “We now know who the weaker plaintiff is.”

Neither Tesla nor Activision responded to requests for comment.

‘Foolish' Fight

Industry watchers on both sides of employment litigation called the lack of agency cooperation and dueling enforcement actions an unusual and concerning pattern.

The conflict has rattled EEOC staff, according to John Fox, a partner with Bay Area management law firm Fox, Wang & Morgan P.C., who said he's heard directly from them.

“They're unhappy because they've always enjoyed good relations with the states, and particularly California,” he said. “California's an important piece because it's so large.”

Fox called the turf war “foolish.” “Both agencies have deep backlogs of other work—they can divide the markets and prosper,” he said.

An EEOC spokesperson said in an email that the agency values its “productive relationship with its state partners in a shared mission to prevent and remedy unlawful employment discrimination and advance equal opportunity for all in the workplace.”

DFEH told Bloomberg Law it believes its own actions are better suited to protect workers.

“DFEH has a decades-long history of successful collaboration with the EEOC in advancing our shared mission of protecting the rights of employees,” a spokesperson said. “We believe the state's claims are stronger in this case and will work diligently to protect the interests of California employees.”

Oregon law professor Tippett said the conflict would impact the very workers both agencies are tasked with protecting. Mandatory arbitration clauses—often included in employment contracts—cut off the ability for employees to bring such suits in court on their own, she said.

“In the absence of the plaintiffs' bar, employees have nothing to rely on other than these government agencies, so it makes their role more important than ever.”

California Shake-Up

Industry observers pointed to Janette Wipper, the ousted chief counsel at DFEH, as the driving force behind the agency's prosecution of prominent companies like Tesla and Activision, and questioned how her departure would impact the agency's litigation approach.

“Certainly when she joined DFEH, clients did experience a significant uptick and more aggressive approach. Whether it was more effective, I'm not sure the record would bear that out,” said David Fortney, co-founder of Fortney & Scott, LLC, a Washington, D.C.-based management law firm. “Whether it will change now? I would hope so, but we'll see.”

Erin Connell, a San Francisco-based partner with Orrick Herrington & Sutcliffe LLP who defends employers in labor law matters, also said there was a change under Wipper.

“Particularly from the perspective of representing high-tech companies in California—we have noticed a change in the DFEH's approach both in litigation and in investigations since she became chief counsel,” Connell said.

Connell said Wipper's approach at DFEH mirrored her tenure as head of the U.S. Department of Labor's Office of Federal Contract Compliance Programs' Pacific region, where she worked from 2014 to 2018 and targeted companies like Google and Oracle America Inc. The Labor Department subagency enforces anti-bias laws and affirmative action obligations among federal contractors.

“There was always great cooperation between the state and federal investigations before Janette and then it got rocky thereafter,” Fox said.

In a statement, Alexis Ronickher, a partner with Katz, Marshall & Banks, LLP, said Wipper and Proctor “believe that no one is above the law and California's civil rights laws should apply to everyone. For this reason, my clients are proud of the work they did prosecuting civil rights cases at DFEH, whether it was helping farm laborers or bringing systemic cases that fought inequality in the workplace.”

Moving forward, it's unclear what impact Wipper's departure will have on the agency turf war. For its part, Tesla said in an April SEC filing that it plans to “engage in additional dialogue” with the EEOC before that agency makes a final determination about allegations at the Fremont plant.

Any playbook that divides regulators is not good for either agency or for workplace civil rights enforcement, said Tippett.

“Especially now that companies are taking advantage of it, it might be that this is an impetus for the agencies to cooperate more, or at least present a united front in public,” she said.

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First Published Date: 28 Apr, 19:49 IST