Tesla (NASDAQ:TSLA) investors already have plenty to keep track of, from vehicle deliveries to the company’s expansion into AI and autonomous driving. This week adds something very different to that list. A lawsuit brought by the California Civil Rights Department in 2022 is heading to trial in Oakland, with the state agency alleging that Black workers at Tesla’s Fremont factory faced widespread racial harassment and discrimination and that the company failed to prevent or adequately address it. Tesla and its lawyers have denied wrongdoing.
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The trial is scheduled to run through October 30, making the case worth following because California law does not cap the damages that can be awarded to affected workers in employment-discrimination cases.
Bull Case
For Tesla, an important piece of context is that allegations are not findings of liability. The California agency claims Black workers were subjected to racial slurs and graffiti and alleges discrimination involving pay, promotions, and job assignments. Tesla has disputed the allegations and said it does not tolerate discrimination.
In its response when the lawsuit was first announced in 2022, Tesla said it had investigated complaints and terminated employees found to have engaged in misconduct, and maintained teams dedicated to employee relations and diversity, equity, and inclusion. The company has also secured a significant legal victory in a separate case involving similar allegations. Last year, Judge Peter Borkon ruled that more than 6,000 Black workers could not pursue their claims against Tesla as a class.
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That ruling does not determine the outcome of the Civil Rights Department’s lawsuit, which is a separate case. It does, however, show that Tesla has successfully challenged at least one attempt to pursue broad race-discrimination claims against it.
Bear Case
The scale of the state case is what makes it difficult for investors to dismiss. Reuters describes it as one of the most significant employment-discrimination cases against a major U.S. company to reach trial in recent years, given Tesla’s profile and the thousands of workers involved. The agency’s allegations are also broader than individual incidents of harassment, as it claims that the Fremont factory was racially segregated, with Black employees assigned to lower-paying and less desirable jobs, and alleges disparities involving pay and promotion opportunities.
Tesla denies wrongdoing. There is also no statutory cap on damages under the California law at issue, according to Reuters, so if the company is found liable, the company could therefore face damages potentially reaching many millions of dollars. The trial will be decided by Judge Borkon rather than a jury.
Past cases show that these disputes can produce substantial awards, even if those awards are later reduced. A former contract worker at the Fremont plant, Owen Diaz, initially received a $137 million jury award in a separate racial-harassment case, which was sharply reduced by the judge at a later stage.
Conclusion
For Tesla investors, the immediate issue is uncertainty rather than a liability figure that can already be calculated. The state is pursuing allegations involving thousands of workers, and California law does not cap the damages available to affected employees. At the same time, the allegations remain contested, and Tesla has denied wrongdoing. The Oakland trial should begin providing a judicial determination of whether the company is liable for the conduct alleged by California regulators.
Until then, it would be premature to attach a specific financial cost to the case. But given the breadth of the allegations and the absence of a statutory damages cap, the trial is a legal risk Tesla shareholders have reason to follow through to its scheduled conclusion in October.
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This article is originally published at Insider Monkey.
