By: Caren Andrango
Tesla, Inc., a publicly traded company, is again facing a legal complaint which the California Department of Fair Employment and Housing filed alleging systematic sexual harassment and racial discrimination at Tesla’s Fremont, California factory.[1] Tesla’s alleged misconduct should not be a surprise to investors given that the company was recently ordered to pay $137 million to a former employee related a similar legal claim over racial abuse at its Fremont factory.[2] Tesla is currently contesting that jury verdict.[3] Nonetheless, the number of lawsuits relating to discrimination around the factory are noteworthy, and they reflect just a sample of the legal complaints and investigations the company is currently facing. In its most recent public filing, Tesla disclosed a fine of 1.45 million euros for non-compliance under German laws relating to market participation notifications and take-back obligations with respect to end-of-life battery products.[4] Moreover, Tesla is under investigation by the Environmental Protection Agency (“EPA”) for alleged non-compliance with requirements under the Clean Air Act of 1963.[5] Additionally, its waste management programs in certain California counties are being investigated.[6]
It is almost inevitable that large organizations face legal proceedings related to their business operations. To that effect, public companies are required to disclose material legal proceedings to inform investors about any possible material changes to the company’s business or financial conditions. But what is concerning about Tesla’s legal proceedings is the company’s combative response when dealing with regulators. Tesla’s strategy seems to involve evading responsibility and fighting constantly when confronted with any legal allegation. In 2018, Tesla and Elon Musk settled with the U.S. Securities Exchange Commission (“SEC”) over Musk’s claims that he would take the company private – the settlement involved a $40 million penalty on condition that Tesla implements controls to oversee Musk’s tweets.[7] But Musk has continued to publicly criticize the SEC on social media and has continued to tweet about the company which led to the SEC recently subpoenaing Tesla for information on how it oversees Musk’s communications.[8] In another dispute, Tesla agreed to recall over 500,000 cars to address safety issues.[9] Musk’s response involved a tweet stating “The fun police made us do it (sigh),” referring to the US National Highway Traffic Safety Administration (“NHTSA”), instead of acknowledging any accountability.[10] Most recently, Tesla publicly criticized the California Department of Fair Employment and Housing for filling a complaint in which it alleged systematic racial discrimination and harassment. Tesla noted that it was the last remaining automobile manufacturer in California and attacked the State for suing the company “[a]t a time when manufacturing jobs are leaving California . . . instead of constructively working with us.”[11]
Tesla’s history of defiance of authority should be at the forefront of its stockholders’ minds. In particular, the recent developments concerning allegations of sexual harassment and racial discrimination highlight the need for Tesla to address how the company is preventing this type of misconduct and the need for investors to demand change and accountability. Although Tesla makes claims to investors that it encourages its employees to bring any concerns or complaints to any member of management as part of its corporate governance, the recent $137 million jury verdict demonstrates otherwise.[12] With its stock trading at over $800 per share, a major increase since the company went public with a $17 per-share value, investors must be wary of the company’s shortcomings in corporate governance.[13] In the context of the labor market, regulators’ mission is to protect company employees from company misconduct rather than protecting stockholders from plummeting stock prices.[14] Consequently, the company’s largest investors have an opportunity to demand real change and protect the company’s market value. For example, a recent shareholder proposal, filed after the $137 million jury award against Tesla, demanded Tesla publish how effective its measures are in ending misconduct in the workplace.[15] This is a small but significant step towards Tesla being held accountable, and other larger investors should join such efforts to demand real change and combat Tesla’s defiant history with regulators.
[1] See Tesla Inc., Annual Report (Form 10-K) (Feb. 4, 2022); Maeve Allsup, Tesla Racism Suit Shows Musk’s Willingness to Take on Regulators, Bloomberg L.(Feb. 11, 2022), https://www.bloomberglaw.com/bloomberglawnews/daily-labor-report/X7UFG0MO000000?bna_news_filter=daily-labor-report#jcite; Complaint, Dep’t of Fair Emp. and Hous. v. Tesla, Inc., No. 22CV006830, (Cal. Feb. 9, 2022).
[2] Malathi Nayak, Tesla Sued by Black, Gay Worker Claiming “Unchecked” Racism (1), Bloomberg L. (Feb. 2, 2022), https://www.bloomberglaw.com/bloomberglawnews/esg/X7RQJ6B4000000?bwid=0000017e-ba24-d26c-ab7e-ba6fbd940000&cti=LSCH&emc=bblnw_nl%3A16&et=NEWSLETTER&isAlert=false&item=read-text&qid=7241115®ion=digest&source=newsletter&uc=1320006233&udvType=Alert&usertype=External.
[3] Allsup, supra note 1.
[4] Tesla Inc., Annual Report (Form 10-K) (Feb. 4, 2022).
[5] Id.
[6] Id.
[7] Allsup, supra note 1.
[8] Id.
[9] Nayak, supra note 2.
[10] Nicholas Rice, Elon Musk Says “Fun Police” Were Behind Tesla Recall of Feature that Made Fart and Goat Noises, Yahoo! Fin. (Feb. 14, 2022), https://finance.yahoo.com/news/elon-musk-says-fun-police-163912329.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAIxLpWl8NJJL9fN6_ZAO8kne91AyUNNcGhWf0gCCpp05BKFHdW9h93a2f0zB6gQTnk49uvG2lsaQu1YH19QsnGnm0lTkFnIVRhKv_KDvZzAJRGHnO2nydd6MLopl92oMzh3_VKXbmUKp9LwcjM4AnH_txUZpcu2GhKWeTzEP8LJ8.
[11] The DFEH’s Misguided Lawsuit, Tesla Blog (Feb. 9, 2022), https://www.tesla.com/blog/dfehs-misguided-lawsuit.
[12] Tesla Inc., Annual Report (Form 10-K) (Feb. 4, 2022); Nayak, supra note 2.
[13] Tesla, Inc. (TSLA), Yahoo! Fin., https://finance.yahoo.com/quote/TSLA/ (last visited Mar. 14, 2022, 10:00 AM); Lora Kolodny, Tesla stock is up more than 4000% since its debut 10 years ago, CNBC (June 29, 2020, 8:28 PM) https://www.cnbc.com/2020/06/29/tesla-stock-up-4125percent-since-ipo-ten-years-ago.html.
[14] Allsup, supra note 1.
[15] Saijel Kishan, N.Y. Pension Ramps Up Pressure on Tesla After Race-Bias Lawsuit, Bloomberg L. (Feb. 15, 2022), https://www.bloomberg.com/news/articles/2022-02-15/n-y-pension-ramps-up-pressure-on-tesla-after-race-bias-lawsuit#:~:text=New%20York%20state’s%20retirement%20plan,harassment%20and%20racial%20discrimination%20complaints.
