Wrongful termination, sexual harassment, discrimination and virtually every other employment-related claim begins with a turf war, a fight over which court will hear the case.  Employee plaintiffs prefer California state courts due to the generous scheduling and unfussy adherence to the rules.  Out-of-state employer defendants want to remove to federal court on diversity grounds and pressure plaintiffs with tight deadlines and judges bent on strict compliance. 

DODGING FEDERAL COURT

 

In September 2008, the Daily Journal reported on a study published by the Harvard Law & Policy Review finding that plaintiffs’ lawyers handling employment discrimination claims are “increasingly trying to dodge federal courts.”  For years, plaintiffs’ most potent weapon to avoid federal court was naming the plaintiff’s immediate supervisor as a defendant, destroying diversity.  In order to successfully remove, defendants have to establish the supervisor as a “sham defendant” against whom no possible cause of action can be stated, a high hurdle.  Federal courts, generally disfavoring diversity jurisdiction, are happy to remand state employment claims back down to the plaintiffs’ favored ground.

California courts have not always played ball for the plaintiffs, though.  As soon as plaintiffs appear to have a sure-fire claim to assert against a diversity-killing supervisor defendant, California courts find that supervisors and co-employees cannot be personally liable for those personnel management decisions.

For example, prior to 1996, plaintiffs relied on discrimination claims against individual supervisors in violation of the California Fair Employment and Housing Act to destroy diversity.  The Second Appellate District put an end to this liability in Janken v. GM Hughes Electronics, 46 Cal. App. 4th 55 (1996).  Janken held that discrimination claims arise out of the performance of necessary personnel management duties; therefore, supervisors could not be personally liable for discrimination under FEHA.  Two years later, the California Supreme Court agreed, holding in Reno v. Baird, 18 Cal. 4th 640 (1998), that supervisors who did not themselves qualify as employers could not be personally sued for alleged discriminatory acts, wrongful termination or wrongful discharge in violation of public policy.

Undeterred, plaintiffs shifted gears and began alleging “retaliation” claims against individual defendants that looked similar to discrimination claims.  But last year the California Supreme Court weighed in again on the side of managers in Jones v. The Lodge at Torrey Pines Partnership, 42 Cal 4th 1158 (2008).  There, the Court held that individuals are not personally liable for alleged retaliation.  Jones relied heavily on the rationale of Reno and Janken that supervisors are employer’s agents and must have some protection to carry out the duties incumbent upon their positions.

Jones gave supervisors a temporary respite from being personally named as defendants in employment litigation.  No more.  The plaintiffs bar has found a new, tougher to remove, claim – defamation.

When an employee is terminated, the employee’s supervisor will invariably discuss the matter with others.  Allegations that such statements were “defamatory” are now beginning to appear with frequency in employment cases as defamation claims against individual supervisors.

California law provides little to no protection to supervisors for defamation, even when the statements occur during the course and scope of employment and while carrying out ordinary personnel management duties.  In addition, California courts have inconsistently stated the pleading requirements for defamation.  Some courts require the plaintiff to plead facts sufficient to allow for an inference of malice and others find a bald assertion of “malice” sufficient.

In this new breed of claim, a statement as simple as:  “We should terminate Brian because he falsified his time card,” when paired with allegations of malice could give rise to a diversity-destroying defamation claim.  But why should such a personnel management statement – even if false – serve as a basis for liability on an individual supervisor when the same action, if taken for discriminatory or retaliatory reasons, could not?

To date, no California appellate court has addressed the issue framed in this Janken/Reno/Jones manner. One California decision that came close considered the issue of individual liability for non-FEHA workplace torts, including defamation.  Sheppard v. Freeman, 67 Cal. App. 4th 339 (1998).  Sheppard agreed with the rationale of Reno that co-employees could not have individual liability for torts “in relation to personnel actions” even if those actions were otherwise maliciously tortious.  Id. at 345-347 (creating a “co-employee privilege” so all employees “could carry out personnel duties without fear of being sued for that conduct”).

Unfortunately, Sheppard expressly refused to apply its co-employee privilege to defamation claims against the individual defendants because defamation is a “statutory action.”  Without any substantive explanation, the court held, “[E]mployees, regardless of their scope of employment or personal motives, cannot be individually liable for their acts or words relating to personnel actions unless such liability arises from statute [defamation].”  Id. at 348-349 (emphasis added).

Sheppard has been roundly criticized for its creation of an overly broad “co-employee privilege” as well as for its holding that defamation claims are not subject to that same privilege simply because liability for defamation arises from statute, leaving the state of the law unsettled.  See, e.g., Graw v. L.A. County Metropolitan Transit Authority, 52 F.Supp.2d 1152, 1158 (C.D. Cal. 1999) (rejecting both Sheppard’s co-employee privilege and the statutory action exception for defamation and criticizing Sheppard’s assumption that statutory actions are “inherently more significant than non-statutory actions”); Davis v. Prentiss Properties Limited, Inc., 66 F.Supp.2d 1112 (C.D. Cal. 1999) (same).  See also Joyce v. Walgreen Co., 2007 U.S. Dist. LEXIS 51893 (E.D. Cal. 2007) (rejecting removal based on argument that individual was sham defendant who couldn’t be liable for defamation arising out of personnel-related statements).

These varying decisions leave employers and employees with little concrete guidance regarding what a supervisor can and cannot say about a terminated employee without finding him or herself named in an employment lawsuit.

PUBLIC POLICY IMPLICATIONS

The issue is an important one, and not just because defendants may prefer federal court to state court.  Rather, employers need to communicate with the employees they supervise.  Managers and supervisors need to be able to work without fear that making and communicating personnel management decisions presents the risk of personal liability.  Employees can cope and learn from a colleague’s termination if they can hear the supervisor’s reasons for terminating.  In King v. United Parcel Service, Inc., 152 Cal. App. 4th 426 (2007), for example, the employer’s allegedly defamatory statements about the plaintiff’s termination were held privileged because the employer intended to send a message to its employees that it took falsification of time cards so seriously that even a single infraction was enough for termination.

California courts should, as they did in Janken, Reno and Jones, shield supervisors from personal liability for defamation for the communication of employment-related information.  If the allegedly defamatory communications were made in the scope and course of employment related to personnel management duties, there is no compelling public policy that is advanced by allowing this type of liability.  If anything, it will have a chilling effect on managers, which, in the long term, will harm workplace speech and deny California employees much needed information regarding layoffs and terminations.

(Post by Martha Doty and Rory Diamond)