A record $37 million lawsuit brought against Australian department store David Jones (ASX: DJS) by one of its employees is overshadowing the retailer's launch of its spring-summer fashion collection.

Kristy Fraser-Kirk, a 26-year old publicity co-ordinator is seeking punitive damages for sexual harassment, asking for 5 per cent of the $700 million in profits David Jones made between 2003 and 2010 when Mark McInnes was chief executive and another $2 million from Mr McInnes, 5 per cent of his salary.

''If the court does decide to award punitive damages, all of that money will go to a charity to help those affected by sexual misconduct at work,'' Ms Fraser-Kirk said.

On June 18, Mr McInnes's contract was ''mutually terminated''. He was given a $2 million payout and was replaced by Paul Zahra.

Mr Zahra and the company's eight other directors are named as respondents in the case.

The filing of the claim in the Federal Court in Sydney yesterday came as a surprise to David Jones, as did the amount. It is believed negotiations with the complainant's lawyers were ongoing until recently.

Ms Fraser-Kirk said yesterday she did her best to have the issue resolved fairly.

Despite the action, the Australian retailer, which in 2008-09 reported a record $156.5 million profit, yesterday confirmed that it forecast profits to increase by 5 to 10 per cent for 2009-10. It also sees to accomplish another 5 to 10 per cent gain in 2010-11 ''based on all the information available to it''.

David Jones was mum on the outcome of a recent independent review of its code of ethics and conduct, or changes it may make.

According to the statement of claim, four other employees were the victims of serious sexual misconduct by Mr McInnes, and three of them were known to the company.

David Jones said it would vigorously defend the lawsuit.