Tesla faces investor test after big jury award over racism

A contract worker has won a $137 million jury award over workplace racism against Tesla, raising pressure on the electric vehicle maker whose shareholders will vote on Thursday on a proposal to review how it addresses similar complaints for full-time employees.

The nonbinding shareholder resolution asks Tesla's board to study the impact of the company's current use of mandatory arbitration to resolve complaints of harassment and discrimination in its workplace. Tesla opposes the plan.

On Monday, a San Francisco federal jury made the award to former Tesla worker Owen Diaz. “The verdict sends a message to corporate America that you need to make sure that racist conduct is not occurring,” Lawrence Organ, his attorney told Reuters.

Diaz was able to face a public trial because contract workers were not subject to Tesla's mandatory arbitration, which forces employees to resolve disputes outside judiciary courts.

Tesla advised against the resolution because, it said, arbitration "benefits both parties with a fair resolution and a speedier return to their respective priorities without miring them in lengthy litigation."

Some technology companies have scaled back or eliminated mandatory arbitration. Uber and Lyft no longer require mandatory arbitration in cases over sexual harassment. Google ended mandatory arbitration in 2019. In April, nearly half of Goldman Sachs Group shareholders voted in favor of examining the bank's use of mandatory arbitration. read more

Imre Szalai, a law professor at Loyola University New Orleans, said such a verdict against Tesla would create "shaming and awareness" of problems at the company.

"The public becomes aware that Tesla needs to change and increases more pressure for the company, as opposed to confidential arbitration award that doesn't get that much publicity," he said.

Tesla arbitration agreements with employees and customers effectively bars them from publicly fighting in court disputes about pay, sexual harassment, race, disability and other kinds of discrimination, as well as product defects.

There are around 100 cases in U.S. federal and state courts where Tesla sought to compel arbitration including lawsuits against the company over employment, personal injury and contract matters, according to Reuters' review of Westlaw case data.

Kristin Hull, CEO of Nia Impact Capital who filed the resolution, said Monday’s jury verdict could help boost support. A similar measure last year garnered a 27% share of votes cast. Musk has 23.1% of Tesla shares.

"This will be alarming," she told Reuters after the verdict. "That's a huge brand risk for Tesla to have these cases."

Tesla's clean-transportation credentials have made it a popular investment for environmental, social and governance investors. "This has taken a lot of environmental investors by surprise and they're not happy," she said.

Nia Impact Capital has tried to sway major shareholder BlackRock, whose funds voted against the resolution last year. BlackRock declined to comment.

Tesla said that in the years since Diaz worked at the company it has added employees to investigate complaints and to promote equal opportunity.

In a blog post after the jury verdict Tesla Vice President Valerie Capers Workman wrote that "we will continue to remind everyone who enters the Tesla workplace that any discriminatory slurs – no matter the intent or who is using them – will not be tolerated."

Still, proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis both have recommended investors support the proposal, as they did the similar proposal last year.