Tesla, as well as its CEO Elon Musk, are used to various scandals and lawsuits. But even for Tesla, this lawsuit is a serious problem. This week, a San Francisco federal court decided that the company must pay a former worker, Owen Diaz, around $137 million after he endured racist abuse working for the company. The jury awarded even more money than attorneys asked for their client, including $130 million in punitive damages as well as $6.9 million for emotional distress.
Owen Diaz was hired at Elon Musk’s company in 2015. Diaz faced a confrontational work environment in which, he told the court, co-workers used epithets to humiliate him. They also abused other black workers. Colleagues told him “to go to Africa” and left racist graffiti in the restrooms and a racist drawing in his workplace.
Tesla, its employees, and legal aspects
The case was only able to move forward because Diaz hadn’t signed one of Tesla’s mandatory arbitration agreements. The company uses arbitration to force workers to settle disagreements behind closed doors rather than in a public trial.
As in the case of other companies that use mandatory arbitration, it rarely faces significant damages. Furthermore, Tesla also rarely takes deep corrective actions after arbitrators settle a dispute. Still, the company was required to pay $1 million as the result of an arbitration agreement. Its former employee, Melvin Berry, also endured a racist, hostile workplace at Musk’s company.
The Oakland-based social impact fund, Nia Impact Capital is urging the company’s board to study the effects of mandatory arbitration. According to Nia Impact Capital, mandatory arbitration can enable and hide sexual harassment and discrimination from Tesla shareholders. Such an approach has the potential to harm employees. Tesla’s VP of People Valerie Capers Workman downplayed the severity of the racist discrimination Diaz described.
Apart from Nia Impact Capital, Institutional Shareholder Services is also against mandatory arbitration. It recommended the company’s shareholders approve Nia Impact Capital’s proposal. Institutional Shareholder Services noted that Tesla faced many serious allegations of sexual and racial harassment and discrimination in the past.
In 2021, Tesla’s board advised shareholders to vote against reporting on the impacts of mandatory arbitration on employees. The company’s annual shareholder meeting will take place at Tesla’s new vehicle assembly plant under construction in Texas on October 7.