Employment Law Group Update: Supreme Court Expands "Whistleblower" Public Policy Exception

In the California Supreme Court's most recent employment decision, the Court ruled that administrative regulations may be a source of "public policy" that limits an employer's right to terminate an otherwise at-will employee. Green v. Ralee Engineering Company, (Aug. 31, 1998). In a 5-2 ruling, the Court reinstated the wrongful discharge claim of an aircraft parts inspector who claimed that he was terminated for complaining to his supervisors that the company was shipping defective parts to various aviation companies in violation of regulations implementing the Federal Aviation Act.

The California Supreme Court first recognized the public policy exception to the at-will employment doctrine in Tameny v. Atlantic Richfield Company (1980), holding that employees may recover tort damages upon a showing that their terminations contravened public policy. Prior to Green, however, most California courts had limited such "Tameny claims" to those instances where employees could demonstrate that the important public interests at issue were delineated in constitutional or statutory provisions such as those prohibiting age or sex discrimination. The Court's decision in Green settles the much debated question on whether administrative regulations implementing statutory provisions could also form the foundation for Tameny claims.

While both critics and supporters of the Court's decision appear to recognize its potentially broad ramifications, only time will tell its true impact. While limiting its holding to claims involving commercial airline safety regulations, Green expressly leaves open the possibility that wrongful discharge claims may be based on other regulations which "implicate substantial public policies." Thus, the decision could lead to an increase in public policy claims based on the alleged violation of any of the vast number of administrative regulations thus far promulgated by state and federal agencies. On the other hand, it may well be the case that the plaintiffs' bar has already identified a majority of the public policies upon which plaintiffs will typically base a claim. If so, perhaps Green changes little.

Disabled Employees Gain Greater Rights to Sue Under FEHA

In a potentially important win for employees, the California Supreme Court has recently ruled that employees are not limited to workers' compensation as their sole remedy under state law for discrimination based on job-related injuries. In City of Moorpark v. Ventura County Superior Court (Dillon), (Aug. 17, 1998), the Court held that employees who are denied reasonable accommodation for injuries suffered on the job may assert claims for disability discrimination under California's Fair Employment and Housing Act ("FEHA"), as well as common law claims for wrongful discharge in violation of public policy. Previously, injured employees were limited to filing such discrimination claims with the state Workers' Compensation Appeals Board or suing under the Americans with Disabilities Act ("ADA").

The plaintiff in Moorpark was an administrative secretary for the City from 1990 to 1994 who claimed that she was terminated following surgery for a knee injury she suffered on the job. In her complaint, plaintiff alleged that she received her doctor's approval to return to work but the city terminated her instead of providing her with a reasonable accommodation. Reversing long-standing appellate court precedent, the Supreme Court rejected the City's argument that workers' compensation benefits provided the exclusive remedy for such alleged discrimination.

The Court's decision is particularly significant in light of the increasing number of employees claiming to have been terminated for medical or stress-related injuries suffered on the job. Under California's Workers' Compensation scheme, such discrimination claims are capped at $10,000 and $250 in costs, plus back wages, and the ADA generally caps compensatory and punitive damages at $300,000, plus back wages. Following Moorpark, employers may see an increase in the number of FEHA disability discrimination suits since FEHA permits the recovery of unlimited punitive damages.

Courts Provide Further Instruction on Performing Employee Misconduct Investigations

Earlier this year, in Cotran v. Rollins Hudig Hall International, Inc., 17 Cal. 4th 93 (1998), the California Supreme Court held that when an implied employment contract exists requiring good cause for termination, the employer need not prove that the alleged misconduct upon which it seeks to base the termination decision actually occurred. Rather, an employer need only show that it "reasonably believed" that the alleged misconduct took place and that it otherwise acted "fairly." The Court articulated three factors to be used in determining employer liability: (1) did the employer act with good faith; (2) did the decision follow an appropriate investigation; and (3) did the employer reasonably believe that the misconduct had occurred. Two recent decisions illustrate the practical application of these principles.

In Silva v. Lucky Stores, Inc., (June 29, 1998), the California Court of Appeal upheld summary judgment in favor of Lucky Stores where the undisputed facts demonstrated that Lucky had terminated the plaintiff for good cause. In Silva, two female employees accused plaintiff of sexual harassment. Upon receipt of the complaints, Lucky immediately brought in an independent human resources representative to investigate. The investigator interviewed numerous witnesses who corroborated the complaints. The interviewer asked open-ended, nonleading questions, maintained confidentiality, encouraged witnesses to clarify and correct their testimony or challenge information provided by other key witnesses, and encouraged witnesses to stay in contact with him if they had further information. Lucky also promptly notified plaintiff of the charges and gave him ample opportunity to clarify his position and respond to all allegations. The interviewer documented the investigation and drew conclusions based on the unbiased facts uncovered in the investigation. Based on his conclusions, Lucky terminated plaintiff. The Court held, consistent with Cotran, that Lucky Stores had "listened to both sides" and had made a good faith finding, after an appropriate investigation, which was based on a reasonable belief that the misconduct had occurred.

In contrast, the recent case of Carrisales v. Department of Corrections, (Aug. 14, 1998), illustrates how an employer, despite adopting a harassment policy and providing training for its employees, can find itself in trouble for failing to take "immediate and appropriate corrective action" in response to complaints of harassment. In Carrisales, the Court of Appeal denied summary judgment to an employer where its supervisors, who ultimately terminated the alleged harasser, had failed to (1) immediately document the first complaints, (2) interview and follow-up with all parties, and (3) monitor the continuing interactions of the parties. The Court also noted that by failing to take such action the supervisors had failed to follow the Department's own internal policies. Thus, a jury could find that the Department had failed to take immediate and appropriate corrective action. Accordingly, the Court denied the Department's summary judgment.

Cotran, Silva and Carrisales provide helpful instruction to California employers as to how to properly investigate allegations of employee misconduct and how best to support a determination that "good cause" exists to terminate an employee. The cases also highlight the need to respond promptly to allegations of sexual harassment. Employer investigations should be both thorough and fair, and any remedial action taken in response to such investigations should put an end to any alleged harassment. Taking such steps may prove invaluable to employers seeking to avoid or reduce employer liability for wrongful termination or sexual harassment claims.

Supervisors Are Not Individually Liable for Discrimination Claims Under FEHA

In a significant victory for employers and their supervisors, the California Supreme Court has held that supervisors may not be sued individually under the FEHA for alleged discriminatory acts or for wrongful termination premised on such alleged discriminatory acts. Reno v. Baird, (July 16, 1998).

The Court reasoned that the different statutory language in the FEHA concerning harassment and discrimination revealed the California Legislature's recognition that harassment and discrimination claims involve different types of conduct. Harassment involves behavior unrelated to the performance of job duties, while discrimination claims arise out of the type of personnel decisions necessary to a supervisor's job performance - hiring, firing, demoting, promoting, etc. Given this key difference between harassing and discriminatory behavior, the Court concluded that under the FEHA supervisors may be held personally liable for harassment, but may not be held personally liable for discrimination.

The Court said that its ruling was consistent with the scope of supervisory liability under federal anti-discrimination statutes. The Court also noted that imposing supervisory liability would not further the purposes of the FEHA, since the liability faced by employers acts as a sufficient incentive for employers to prohibit their supervisors from acting in a discriminatory fashion. In fact, the Court reasoned, supervisory liability for discrimination might have an adverse impact on the workplace, for it might make supervisors reluctant to make necessary personnel decisions for fear of facing threats to their own pocketbooks.

Thus Reno resolves an important issue under California law, and provides supervisory employees with the comfort that their personnel decisions and actions will not, absent harassment, be the subject of discrimination claims under FEHA and/or wrongful termination claims premised on such alleged discriminatory conduct. Moreover, at least one court of appeal has pointed to Reno to support its decision that a supervisory employee who neither personally participated in sexual harassment, nor substantially assisted or encouraged it, cannot be held personally liable for it under FEHA. See Carrisales.

Can Employers Terminate Older Workers Just Because They Cost Too Much?

In Keiffer v. Bechtel Corp., (July 24, 1998), the California Court of Appeals upheld a $1.35 million age discrimination verdict against Bechtel Corp. Besides the large verdict, Keiffer is noteworthy because it demonstrates the lack of consensus among courts presented with what has also become a highly charged political issue - whether companies can terminate older workers who receive higher salaries to cut the costs of doing business.

The plaintiff in Keiffer had been with Bechtel for 27 years when management reorganized his department and selected a 30 year old male as the new supervisor. Not long after, based on Keiffer's reduced workload and high salary, Bechtel terminated him as part of a reduction in force. At trial, the court rejected Bechtel's proposed instruction that "[a] decision to terminate an employee to reduce salary costs is not age discrimination." In requesting this instruction, Bechtel relied on Marks v. Loral Corp., 57 Cal. App. 4th 30 (1997), which held that employers may replace more expensive, older workers with less costly younger workers without committing age discrimination.

In Keiffer, the appellate court affirmed the lower court's refusal to give Bechtel's requested instruction. Although the instruction at issue was substantially similar to the instruction given in Marks - that a termination decision based on salary does not constitute age discrimination - the Keiffer court found no error in the lower court's rejection of the instruction. In particular, the Court concluded that the proposed instruction, as well as the one approved by Marks, was "flawed." In so concluding, Keiffer's holding is clearly at odds with Marks'.

Keiffer highlights the controversy over financially motivated employment decisions that may have an adverse impact on older workers. Since the pro-employer Marks decision, Governor Pete Wilson has already vetoed one bill purporting to protect California workers over 40 from companies who terminate older employees based on higher salaries. However, political pressure is increasing and two more bills seeking to overturn Marks are headed for the Governor's desk.