Here are some important cases California employers should be reviewing –

In-House Investigations

When employers assign HR workers to do internal investigations of misconduct, ensure the investigator doesn’t act in bad faith to carry out a pre-determined agenda.  That seems to be what the Court of Appeal determined was going on in King v. US Bank Nat’l Association.  Opinion here. 

There, an executive was discharged allegedly for misconduct.  But the timing of the discharge appeared to be connected to the timing of a bonus that the executive would not earn if he were discharged before a certain date. And the internal investigator did not even interview the plaintiff, King, to get his side of the story. There’s a lot more, but it seems the Company was held liable because the investigator “slandered” King by repeating certain allegations of misconduct without a sufficient basis for doing so, plus enough recklessness to defeat the normal “privilege” that protects HR employees from slander lawsuits when they do their jobs in good faith.

Normally, an at-will employee can be fired for an irrational and incorrect reason. There is no particular “quality” of investigation required to fire an at-will employee, either. And that was also the case here.  In fact, King did not go to trial on a wrongful termination claim.

Rather, King prevailed on a defamation theory, which also should have been difficult to do because of the “common interest” privilege I mentioned above, and because you can’t turn a wrongful termination case into a tort. Usually.  King also won on the implied covenant of good faith claim based on the denial of his bonus.

Because punitive damages were available on the defamation claim, and there was proof of harm to his reputation, the total value of the deal was millions of dollars. $17,179,392, to be precise.  The bonus at issue was worth under $300,000. So, not a smart trade-off here. And it pays to do internal investigations correctly and competently if you’re going to do them.

The Court of Appeal stretched the qualified privilege here, and also stretched the “managing agent” doctrine for punitive damages liability to get to this result, I believe. We’ll see if the California Supreme Court is called upon to take up this case.

Arbitration

A handbook contained an arbitration provision. The handbook’s acknowledgment of receipt provided only this:

This is to acknowledge that I have received a copy of the Employee Handbook. This Handbook sets forth the terms and conditions of my employment as well as the rights, duties, responsibilities and obligations of my employment with the Company. I understand and agree that it is my responsibility to read and familiarize myself with all of the provisions of the Handbook. I further understand and agree that I am bound by the provisions of the Handbook. [¶] I understand the Company has the right to amend, modify, rescind, delete, supplement or add to the provisions of this Handbook, as it deems appropriate from time to time in its sole and absolute discretion

The arbitration agreement was in the second version of the handbook the employee received. It contained the above receipt, which was identical to the first.  No one told Conyer there was an arbitration agreement added to the new handbook. Employee Conyer signed the receipt, but didn’t remember doing so. He denied receiving the second handbook at all and claimed he never would have agreed to arbitration. The employer did nothing else to point out the arbitration agreement in the handbook, other than list it in the Table of Contents.

Is that really enough to create a binding arbitration contract?  Well, not if you had asked me before I read this case, Conyer v. Hula Media Services, LLC.  (Opinion here).  The Court, however, held that the arbitration agreement in the handbook was entirely enforceable, bless them:

Plaintiff insists he was “unaware that his signature on the acknowledgment form was intended to create a contract,” and what he signed was not on its face a contract, so that “the holdings of typical contract cases” like Sanchez do not apply. That, however, ignores the words on the face of the receipt, in which plaintiff acknowledged the handbook sets forth the terms, conditions, rights, duties, responsibilities and obligations of his employment, and plaintiff expressly agreed he was bound by its provisions. That is a contract.

If this case is not depublished or taken up on review, it may change my whole philosophy on arbitration agreements.

On the other hand, the Court of Appeal in Davis v. Kozak (Opinion here) invalidated an arbitration agreement, probably because it was written in 2003. The agreement was flawed in that it limited depositions to two per side and did not affirmatively allow for paper discovery.  It also carved out from arbitration any disputes under the Company’s confidentiality agreement (allowing the Company to go to court for restrictive covenants and trade secret disputes and such).  The Court of Appeal even noted that an agreement need not be 100% mutual under current court decisions, but that Red Bull did not provide any justification for the carve out.  So, it pays to update arbitration agreements from time to time.

PAGA Settlements 

A PAGA settlement should trump all the other PAGA claims that are covered by the settlement. So, assume there is an allegation that an employer is violating rest period law in violation of PAGA, and that case is settled, and the settlement covers all the salespersons during 2019.  That should mean no one else can being a PAGA claim based on rest period law covering sales persons in 2019.  Typical “res judicata” stuff. But since PAGA lawsuits aren’t class actions, it’s unclear what effect a “representative” action has on other “representative” actions.

In Starks v. Vortex Indus. (Opinion here), Starks and Herrera were maintaining separate PAGA lawsuits, essentially claiming the same violations.  Herrera did not intervene in Starks’ case, but did not litigate his case either. Starks ended up settling, paying the Labor Workforce Development Agency, and paying out all the aggrieved employees.  Vortex then moved for summary judgment against the Herrera case because it was barred by the settlement.  Herrera thought he should be able to open up the settled case, intervene, and litigate.  But the Court of Appeal held that once the LWDA accepted the PAGA settlement, that was the end of any case covered by the settlement.

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More updates before the holiday.

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