Tesla Can't Take Cover Under 'Arbitration' Proceedings In Sexual Harassment Lawsuit, Judge Rules

Tesla, Inc. TSLA faced a legal setback in a sexual harassment lawsuit, days after the company's stock came under pressure following reports of alleged sexual misconduct by its chief executive officer Elon Musk.

What Happened: Tesla will not be allowed the leeway of arbitration in a lawsuit filed by a female employee over rampant sexual harassment at its Fremont California factory, Bloomberg reported.

Alameda Country Superior Court Judge Stephen Kaus ruled that Jessica Barraza, the aggrieved employee, can fight the case in court and Tesla wouldn't be allowed closed-door arbitration.

Barraza filed the lawsuit last year, accusing the company of allowing "rampant sexual harassment at workplace" that included "catcalling, lewd comments and inappropriate touching."

Related Link: How Much Wealth Did Elon Musk Lose In This Week's Tesla Stock Rout?

The ruling comes despite the plaintiff signing an arbitration agreement that would disallow her from suing the company.

A federal law passed by President Joe Biden earlier this year bars companies from forcing employees to go for arbitration in sexual harassment claims. Tesla, according to Bloomberg, invariably takes the arbitration route to resolve employee disputes and has succeeded with it in a majority of cases.

Why It's Important: The development could further hurt Tesla's image at a time the company's stock has come under intense selling, dragged by both company-specific and external factors.

Last week, a Business Insider report that suggested SpaceX paid $250,000 to a flight attendant in 2018 to settle claims of sexual misconduct by Musk created a furor. The stock reacted to the report with a move to the downside.

Tesla closed Tuesday's session down 6.93% at $628.16, according to Benzinga Pro data.