Romance in the workplace is an issue employers approach with justifiable trepidation, experts say.

On one hand, they would much prefer letting employees keep their private matters private. But on the other hand, they recognize office romances can encroach on the workplace and, if handled improperly, can mean significant liability for the company.

The way to deal with it is to establish policies and procedures that protect the company without engaging in undue meddling, observers say.

The issue has received considerable media attention recently. Late last month, baseball analyst Steve Phillips was fired by ESPN after admitting to an affair with a production assistant at the network. In early October, “Late Show” host David Letterman admitted on air to affairs with subordinates at his New York-based Worldwide Pants Inc., after an extortion threat.

The problems with workplace romance occur when a relationship sours and one or both of the participants is unhappy, observers say. Particularly problematic, say observers, are the relationships between supervisors and subordinates where the inherent power imbalance could result in charges that a subordinate was pressured into having a relationship to keep his or her job, or that a rejected supervisor engaged in retaliation.

The most frequently cited type of liability is sexual harassment, say observers. Under Title VII of the Civil Rights Act of 1964, to successfully sue an employer, a plaintiff must show that “what occurred was actionable sexual harassment and that there's some basis for holding the employer liable for what happened,” said Joanna L. Grossman, a professor at Hofstra University School of Law in Hempstead, N.Y.

In a case involving a romantic relationship between co-workers, an employer can be held liable only if it was negligent in responding to reports of sexual harassment, she said. However, in cases where a supervisor explicitly uses the employer's authority to sexually harass a subordinate or create a hostile environment, the firm automatically would be found liable, Ms. Grossman said.

Another potential area of liability is sexual favoritism complaints, which may be brought by co-workers who may feel, for instance, the recipient of a supervisor's attentions is getting preferential treatment. These are very difficult to prove, however, said Ms. Grossman.

Established policies can help minimize employers' liability. Observers say it probably is not feasible to introduce policies that prohibit all dating between employees. Forty percent of workers say they have dated a co-worker at some time during their careers, according to a February survey by Chicago-based CareerBuilder.com.

However, “the basic policy should certainly prohibit personal relationships where they can cause a conflict of interest, such as a direct-reporting relationship,” said D. Gregory Valenza, managing partner with law firm Shaw Valenza L.L.P. in San Francisco. Transfers should be arranged or one or both may have to leave the company, observers say.

“The policy should state clearly that, if a relationship ends, that the parties are expected to report, if there's mistreatment, to the appropriate people,” Mr. Valenza said. It also should stipulate that “people should refrain from conduct that could cause an uncomfortable work environment for others.”

Prohibiting sexual harassment should be the foundation of any policy, say observers.

“Employees and, in particular, supervisors, need to know that sexual harassment will not be tolerated in the workplace,” said William W. Bowser, a partner with law firm Young Conaway Stargatt & Taylor L.L.P. in Wilmington, Del. It also is important that employees “know where to turn if they believe they are being subject to sexual harassment by their supervisors or by their co-workers,” he said.

Diana L. Hoover, a partner with law firm Mayer Brown L.L.P. in Houston, said, you “have to start with a very strong policy and then you have to follow it and abide by it. And that means when your best salesperson who brings in the most revenue violates the policy, you have to discipline him just as you would anyone else,” she said.

If the employer becomes aware of a relationship that does not violate a policy, such as one forbidding supervisor-subordinate relationships, “make sure you can live with the potential risk of the two working together,” and that it is consensual, said Andria Lure Ryan, a partner with law firm Fisher & Phillips L.L.P. in Atlanta.

If there are subsequent complaints of harassment, “be very proactive,” Ms. Ryan said. But, “don't be so rigid as to require people to put it in writing or file a complaint.”

Employers also should investigate secondhand complaints, said Ms. Ryan. Good employees “who don't want to be troublemakers may talk to co-workers,” and so the only time an employer may hear about a “truly serious harassing problem may be secondhand,” she said.

But do not go too far, warned Robert E. Gregg, a partner with law firm Boardman, Suhr, Curry & Field L.L.P. in Madison, Wis. He cited a case, in which he represented the employer, where a sales manager followed two employees he suspected of having an affair to a hotel, but who never bothered to find out if they rented a room or were just friends who went to its bar for a drink.

Instead, he discharged both and told both their spouses. Charges subsequently filed against the company included invasion of privacy, defamation, interference with a marital relationship, and unfair discharge.

His behavior was “just so far out of line,” that all the employer could do was settle, Mr. Gregg said.

“It wasn't any of the sales manager's business,” said Mr. Gregg, who would not reveal details of the confidential settlement.