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Paul, I deal with this stuff at work on occasion. Sexual harrassment is one of those terms that is thrown around pretty loosely these days and employers get scared when they hear it. We've settled cases for low dollar amounts even thought we didn't believe the accuser just because it was cheaper than going to trial. Many cases that are settled are the typical "she said, he said" cases where it's hard to say who's telling the truth. Sometimes both people are telling the truth and it's all about how the other person interpreted it. One of the first things I say to all new managers in the company is that "perception is reality, so always think about what you say and how it can be interpreted".
As a side note, the main reason I went into HR is so I could sexually harrass women and they would have no one to report it to.
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