At a 2005 Christmas party for a California-based shipping company, a male supervisor greeted one of his subordinates, a male truck driver, with an affectionate hug and a kiss on the cheek in front of the employee’s co-workers. What that supervisor apparently perceived as harmless joking, the subordinate now claims was sexual harassment, and he’s suing the company for damages.

The plaintiff claims in the ongoing suit that his supervisor’s behavior at the company party was part of a larger pattern of inappropriate sexual behavior, including leering at him in elevators and showing him “unwanted attention.” That behavior culminated with the kiss at the holiday party.

Christopher Boman, an attorney for Fisher & Phillips, an employment law firm based in Irvine, California, who represents the defendant, says his client’s actions were misunderstood. He adds that the employee’s lawsuit is opportunistic and that it is retribution for a poor performance evaluation by the superior given after the party.

But as this case demonstrates, the office holiday party can be the ideal time for company employees to cut loose and celebrate with co-workers, and for employers to show their appreciation for everyone’s hard work. But it’s also fraught with legal peril. Many revelers can recall parties where they or someone else drank too much or were indiscreet in their behavior with a co-worker.

Sometimes such indiscretions lead to formal complaints that are followed by internal investigations, disciplinary action, and even lawsuits. And while the cases don’t always involve sexual harassment, this seems to be the most common cause for action. In the past, companies have been sued for liability when an intoxicated employee is involved in an automobile accident while driving home from a party, and there have also been discrimination lawsuits from disgruntled employees who maintain they were excluded from a party because of gender, race, religion, or sexual preference.

While there are no statistics that measure how many lawsuits and complaints arise from holiday parties, lawyers say the numbers are increasing, along with the number of workplace-harassment and discrimination suits in general. As a result, Elise Bloom, a partner in Proskauer Rose’s Labor & Employment Law department in New York, advises corporations planning parties and celebrations to do so carefully in order to avoid the circumstances that lead to inappropriate employee behavior, or even lawsuits against the company itself. Bloom has compiled a list of tips corporations should observe in advance of party planning, starting with sending an internal memo to remind them that the party is a business event where work-appropriate behavior is expected. To hammer home the point, she advises circulating the corporate antiharassment policy along with the memo.

Bloom advises companies to employ professional bartenders at the event, if libations are offered—or better yet, to hold the party at a bar, club, or restaurant. Wherever the party is held, organizers should give crystal-clear instructions to the bartenders beforehand: Don’t serve anyone who is obviously intoxicated. And consider limiting the number of beverages served per person.

Finally, before the party, employers should check their insurance policies to make sure the company is covered in case of trouble at the event. Any complaints that arise from the party should be looked into immediately, and action should be taken quickly after an incident has been verified.

Susan Stinson, the manager of special projects for Alpha Staff, a Fort Lauderdale, Florida, human-resources organization, says that her company’s clients are sometimes advised to limit alcohol consumption by issuing drink tickets to employees or by hosting a cash bar instead of an open one. Stinson also says she finds that more companies are selecting an employee to serve as party “manager” or “minder” to unobtrusively watch out for those who are drinking excessively or behaving inappropriately.

Several years ago, Lawrence Lorber, a Washington, D.C., labor lawyer for Proskauer Rose, represented a bank that became entangled in a Christmas-party sexual-harassment complaint. At the party, a high-ranking foreign executive became intoxicated and propositioned two secretaries to join him at a company-owned apartment for an after-party rendezvous.

The secretaries filed an internal complaint, which was investigated and settled before going to court, with the executive being removed from his position and asked to return early to his home country.