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updated 9/19/2010 5:18:38 PM ET 2010-09-19T21:18:38

In 2002, Wal-Mart Stores dispatched an investigator to Guatemala City on a top secret assignment: to spy on factory inspection manager James W. Lynn as he toured a facility with a female colleague. During four days of surveillance, the investigator eventually uncovered the evidence he was after in the form of "moans and sighs" emanating from their Holiday Inn bedroom. In accordance with Wal-Mart's rigid "no-fraternization" policy, Lynn was fired.

The time-honored institution known as the office romance has survived threats like corporate no-fraternization policies, philandering chief executives, and David Letterman. (Or, in the recent case of former Hewlett-Packard CEO Mark Hurd, ambiguous contractors.) Now there's a new legal menace: scorned workers who claim that an office affair fostered an invidious work environment, even if they weren't actually involved in the romance themselves. So-called third party or hostile work environment sexual harassment claims are difficult to prove but easy to allege, particularly by employees fearing for their jobs in a sluggish economy.

As job insecurity has mounted and third party claims have risen, the office fling may become the recession's latest victim. "It seems likely that there's a certain opportunistic element to what's happening out there," says Sondra Solovay, a director of Workplace Answers, a San Francisco-based compliance services company. "Employees who fear for their jobs are making sexual favoritism complaints as a means of ensuring their own job security."

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The most pressing threat to the office romance, Solovay says, is the rise of the retaliation lawsuit. Such suits are waged by workers who claim they were fired to prevent them from filing a discrimination claim against their employer. Currently, retaliation suits are contributing to a wave of litigation that has employers in a panic. The Equal Employment Opportunity Commission's records show claims involving retaliation grew by 23 percent in 2008—roughly twice the rate of all other claims. They totaled 32,690 and accounted for approximately one-third of claims filed with the agency. Retaliation claims rose again last year, accounting for 36 percent of the total. The EEOC, whose mandate is to enforce federal antidiscrimination laws, has added 170 investigators across the country, in part to address the issue.

A once-amorous workforce already seems to be feeling the effects. This February, 75 percent of U.S. workers surveyed by job search website Monster.com believed a workplace relationship could bring a conflict. Sixty-two percent said they felt office romances were a distraction from job performance. Careerbuilder.com's annual Valentine's Day romance poll has shown an alarming decline in reported office trysts. In 2006, 50 percent of respondents claimed to have partaken in a workplace relationship during their career. Earlier this year, the number dropped to 37 percent.

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This is disturbing news not only for employees but also for their bosses. Some management experts believe that a workplace fling can "greatly increase something called 'engagement,' " says Stephanie Losee, co-author of , a guide to finding love in the workplace. "That's when you're excited to come in and work and you care about your company." For these reasons, National Public Radio, Princeton Review, Pixar, and Southwest Airlines encourage in-house matchmaking. Frederick S. Lane III, author of , argues that co-worker couples spend more time at work, take fewer sick days, and are less likely to quit.

More than ever, all it takes is one overly amorous apple to ruin the fun for everyone. Claims of such behavior led to the landmark office romance legal ruling—, in 2005—involving a story of a classic prison love triangle. Plaintiffs Edna Miller and Frances Mackey, both corrections officers, claimed they were discrimination victims of Chief Deputy Warden Lewis Kuykendall, who allegedly was sleeping with three of their colleagues. Miller and Mackey alleged that Kuykendall habitually rewarded the three women with promotions, bonuses, and other special treatment. On one occasion, they said, a paramour announced that if she didn't get promoted, she would take the warden down with her knowledge of "every scar on his body."

Worse, Miller and Mackey described a prison rife with awkward tension, lovers' quarrels, and public displays of affection. When Miller told Kuykendall about an additional affair one of his girlfriends was having with another female employee, she said, the message was passed on to the paramour, who summarily beat Miller into submission and locked her in a closet.

In its ruling, the California Supreme Court declared that neither Miller nor Mackey were victims of traditional sexual harassment. However, it concluded, their claims implied they suffered the collateral damage of an office romance, even though they weren't intimately involved. The case subsequently redefined sexual discrimination liability—and the intervening years have only seen the law evolve more.

Third party discrimination claims have helped further the rise in retaliation and develop the legal theory of "Sex Plus." Regarding the latter, courts have ruled that when a romance enters the office, an employee can prove discrimination based on gender "plus" another particular characteristic. If a manager's failed office romance forces him or her to focus more heavily on the work, his increasing demands on, for example, a pregnant underling could give her the grounds for a lawsuit. Under Sex Plus, the pregnant woman could allege that the office romance had provided an underlying basis for a separate act of discrimination. "When the courts find in favor of the client, then interpretation of the law gets expanded," says Dr. John A. Pearce II, an endowed chairman at Villanova School of Business. "We're seeing the emergence of more and more third party cases. Attorneys go to court and say, 'Following the logic of these laws, we think that you ought to find in favor of our client in this particular new twist.' And that's exactly what's happened."

According to the EEOC, money paid out by companies in sexual harassment lawsuits has averaged only $47.8 million over the last 12 years. That low figure, many believe, is indicative of employers' preference to settle out of court rather than face an ugly lawsuit. However, thanks to the rise of third party discrimination claims, the EEOC recovered $376 million on behalf of discrimination victims in 2009.

Fearing such settlements amid a recession, a growing number of companies are fighting back. One popular method is forcing employees to sit through Web-based compliance training sessions that underscore the perils of a little affection in the copy room. By consolidating sensitivity seminars and policy education into a mandatory online tutorial, companies can put the onus of awareness on the employee. "The dollar amounts that companies are spending on training in general are significantly down from the 2007 and 2008 period," says Gary Fusco, a senior director at Workplace Answers. "But [one of] the two areas where companies actually grew in terms of real dollars targeted was compliance."

Another strategy is forcing employees to sign "love contracts," the office version of a prenup, stating their mutual affection will not interfere with the workplace. If such documentation effectively takes the fun out of an office romance, well, that's the point.

Most companies, however, haven't yet decided what to do. According to a survey of more than 600 companies by the Society for Human Resource Management, 13 percent reported having a written policy addressing intra-office affairs; 14 percent claimed they had an unwritten one. "Companies are still on the fence," says Fusco. "They want to see what happens next before making their move."

One such company is discount retailer Costco. A recent issue of its monthly magazine, , featured a photo of two co-workers locking lips over a queue divider under the banner headline, "Should dating co-workers sign a 'love contract'?" The offered a panel of experts to inform the debate. "At issue here is whether an organization should invite a host of organizational vulnerabilities so as not to impede an office romance," noted Francie Dalton, one of the featured "experts from the field" and founder of Maryland-based management consultancy Dalton Alliances. "That it may happen anyway is not sufficient to negate the need for clear policy....This isn't being hard-hearted—it's acting to avoid ill-advised risk."

Copyright © 2012 Bloomberg L.P.All rights reserved.

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