If you think sexual harassment isn't a problem you need to worry about, think again. In fiscal 2005, the federal Equal Employment Opportunity Commission (EEOC) received 12,679 charges of sexual harassment. The year before, the EEOC resolved 12,859 such charges, recovering $47.9 million for victims. Countless other charges were handled by state-level agencies. Win or lose, defendants in sexual harassment suits pay an average of $75,000 in legal fees, according to an attorney cited by Entrepreneur.com.

In addition to being a potentially expensive problem, sexual harassment can be a hard concept to pin down. “If a carpenter out in the field needs to be working faster or something is leaking, you can quantify the problem and effectively create a change or eliminate the problem,” says Robert Reichek, owner of Reicorp Remodeling, a sunroom company in Atascadero, Calif. “Harassment is different because it's a more nebulous idea,” he says.

Define and Prevent The first step toward preventing sexual harassment: define it and make sure all employees know your policy. This provides your company with the most effective and least expensive defense. “In every state but California, having good prevention procedures in place and engaging in quick remedial reaction can be a defense,” says Mark I. Schickman, an attorney at Freeland Cooper and Foreman in San Francisco, who specializes in labor law.

The EEOC defines harassment as including: unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature that affects a person's employment, unreasonably interferes with work performance, or creates an intimidating, hostile, or offensive work environment. State laws also cover sexual harassment.

Written Policy Up until a few years ago, Pinnacle Energy, of Columbia, Md., had no sexual harassment policy. It does now. Pinnacle has grown, says company president Carlo Pinto, and with more people on staff, having policies in place became more important. The policies are in the company manual, distributed to every employee and reviewed during hiring.

Reicorp Remodeling's new manual spells out how the company will handle any complaint of harassment, an important second step in dealing with the issue. “We ask employees to put any harassment complaint in writing,” Reichek says. “That protects the person harassed and the person accused.” And the company specifies a timeline for follow-up.

Having such a system is good, Schickman says, but making sure the complainant isn't afraid to use it is key. “If an employee says she was too intimidated, it doesn't matter what you have in place,” he says. Most complaints can be resolved at the company level, provided you move quickly.