Each December, companies look to the traditional holiday party as a way to improve morale and make their employees feel appreciated, while sharing with them the joys of the season. Unfortunately, these annual gatherings may not be all fun and games. In order to avoid potential exposure, it is important to understand the legal liabilities associated with hosting a business party.

What are the areas of greatest legal exposure presented by office parties? A report by the Society for Human Resource Management reveals that 36% of employers nationwide have reported some type of employee misconduct at holiday parties, with the most common complaints being inappropriate jokes, vulgar language, sexual harassment and excessive alcohol consumption. The latter two categories have perhaps the greatest implications for employer liability.

Sexual Harassment

The United States Court of Appeals for the Seventh Circuit ruled in 1990 on a sexual harassment case involving an Abbott Laboratories researcher who initiated a sexual relationship with her lab director at a holiday party. The Court made the following observation: "At the risk of playing the Grinch, we note that office Christmas parties also seem to be fertile ground for unwanted sexual overtures that lead to Title VII complaints." The Court then proceeded to list 22 other local sexual harassment cases resulting from holiday parties. That was eight years ago. Since then, the number of such cases in and around Chicago has no doubt risen.

Luckily, there are several steps companies can take to avoid liability for inappropriate employee conduct at office parties:

• If you do not have a sexual harassment policy in place, institute one now. If you do have one, circulate a memo before the party to remind employees of your policy and let them know it applies to company events held outside the office and after normal business hours. Remind supervisors of the rules and coach them on what to do if they witness or hear about potential harassment.
   
• Suggest a dress code for the party that keeps things professional, as provocative attire can send misleading signals that might lead to harassment claims.
   
• Instead of limiting party attendees to employees, consider inviting spouses and/or clients as a way to reduce the tendency of some employees to lose their inhibitions.
   
• When considering holiday decorations, avoid having a mistletoe. While it may be a favorite tradition of the season, a mistletoe encourages kissing and could lead to claims of unwanted touching.

Excessive Alcohol Consumption

Alcohol consumption often goes hand in hand with sexual harassment at parties, but there are steps you can take to diminish the associated risks:

• Make it clear that the party is a voluntary event and attendance is not mandatory.
   
• Remind employees that normal work rules and standards apply to holiday parties.
   
• Discourage employees from drinking excessively, and stop serving anyone who appears to be visibly intoxicated.
   
• Designate someone, preferably a supervisor, to refrain from drinking and monitor the party with event staff to curtail excessive alcohol consumption.
   
• Schedule the party on a weeknight when employees may be less likely to overindulge.
   
• If possible, host the event at a restaurant or bar licensed to serve alcohol, where professional waiters can monitor alcohol intake and politely cut off anyone that they perceive has had enough to drink.
   
• Alternatively, consider providing food but hosting a cash bar. If employees purchase their own drinks, you are less likely to be accused of furnishing the alcohol directly to your guests.
   
• Encourage employees to use designated drivers and provide alternative forms of transportation, such as free taxis. Rather than letting someone leave in an obviously intoxicated state, enlist another employee headed in the same direction to drive him or her home.
   
• Make sure no minors are served.
   
• Review your insurance policies for alcohol-related exclusions.

You should also make sure you understand the law in your state as it relates to potential liability for damage and injury resulting from excessive drinking. The good news for most employers is that “dram shop” liability laws, which are intended to protect the general public from the hazards of irresponsibly serving minors and intoxicated patrons, generally only apply to commercial vendors of alcohol. But that does not mean you are off the hook.

Laws regarding social hosts vary from jurisdiction to jurisdiction, with some states imposing no liability on social hosts. Many states extend the host's liability to injuries from traffic accidents involving the person to whom they served alcohol, while others limit responsibility to injuries that occur on the premises where the party is being held. Regardless of the circumstances or the laws of a particular jurisdiction, a social host should never continue to serve a guest who is visibly intoxicated or whose judgment or physical coordination is obviously impaired.