Justices Limit Damages in Fired Workers’ Suits : Boon for Employers Seen in State Supreme Court Decision Against Emotional, Punitive Awards
In a far-reaching victory for business, the state Supreme Court on Thursday sharply limited the damages workers can claim against their employers for wrongful dismissal.
The justices held 4 to 3 that an employee who is fired without good cause in violation of a company promise can sue only for lost pay and related economic loss--and not for emotional distress and punitive damages that ordinarily provide far larger awards.
The decision, rendered in perhaps the most widely awaited case on the court’s current docket, came in a long-delayed effort by the justices to settle a range of complex issues in the fast-expanding area of employment law.
1,000 Filed Annually
More than 1,000 wrongful discharge suits are filed each year by workers in California, with successful plaintiffs often recovering hundreds of thousands of dollars. The estimated two-thirds of the work force that is not covered by collective bargaining or Civil Service agreements will be affected by Thursday’s decision.
Attorneys in the case said that the ruling limiting awards will make it much more difficult for dismissed employees to find lawyers to bring such suits and that the volume of wrongful discharge litigation could be expected to drop substantially.
The court majority, in a 74-page opinion by Chief Justice Malcolm M. Lucas, said the court was “not unmindful” of the concerns of employees who fear arbitrary and improper dismissal.
But allowing wider monetary awards would have “potentially enormous consequences” for the stability of the business community and should be emplaced in the law only by the Legislature, the justices said.
“It is . . . important that employers not be unduly deprived of discretion to dismiss an employee by the fear that doing so will give rise to potential tort recovery (for additional damages) in every case,” Lucas wrote.
The court also reaffirmed a landmark 1980 ruling allowing damage awards for dismissals that violate “public policy,” such as a firing for refusal to break the law. But in an important limitation, the court said the policy must involve some clear public benefit and not merely the employer’s private interest.
And in a significant gain for employees, the court held unanimously that wrongful discharge suits could be brought even if they involved only an oral or implied promise of continued employment. But it will still be up to workers to show such a relationship with their employers existed.
The decision and its restrictions on the rights of fired workers drew separate and pointed dissents from the three court members in the minority--Justices Stanley Mosk, Allen E. Broussard and Marcus M. Kaufman.
Majority Assailed
Broussard assailed the majority for ignoring a recent series of contrary rulings by the state’s appellate courts and accused the high court of a “radical attempt” to rewrite the law, leaving wrongfully discharged workers without effective legal remedies.
Kaufman attacked the court’s suggestion that employees did not need the added protection of potentially large damage awards because, among other things, they could seek work elsewhere.
“What market is there for the factory worker laid off after 25 years of labor in the same plant or for the middle-aged executive fired after 25 years with the same firm?” he asked.
Steven J. Kaplan, attorney for Daniel D. Foley, the Los Angeles executive who brought the case before the court, said he was “extremely disappointed” by the ruling. Lawyers who work on a contingency-fee basis will be reluctant to represent fired workers in suits where sizable awards are precluded, he noted.
“As a practical matter, non-union employees will have no real avenue of redress, and as a result we’re going to see a major diminution of wrongful discharge cases,” Kaplan said. “Unfortunately, this decision treats people as just another commodity--labor--to be bought and sold by business.”
Kaplan said that in view of the close vote by the justices, he will consider seeking a rehearing before the court. Foley, he said, was disappointed by the ruling but would not be available for further comment.
Robert V. Kuenzel of Los Angeles, attorney for Interactive Data Corp., the defendant in the case, called the ruling “a significant victory” for employers, saying it would free them from the threat of unwarranted and costly punitive awards by unpredictable juries.
“The court has taken the most often-used claim out of the run-of-the-mill employment lawsuit,” Kuenzel said. “The high stakes (potential large damage awards) that bring some of the players into the game are not going to be found now.”
Wrongfully fired employees will still be able to recover losses for violation of a written or implied contract barring dismissal without good cause, he noted. “The other side may be saying this ruling is horrible for workers, but that’s not actually the case,” he said.
Foley, who once earned $56,164 annually as a branch manager for Interactive Data in Los Angeles, was dismissed in 1983 after nearly seven years on the job and just two days after receiving a merit bonus of $6,762.
The dismissal came after Foley informed Interactive Data officials that his new supervisor had been terminated by his previous employer and was being investigated for embezzlement.
In a subsequent suit, Foley claimed that Interactive Data acted in bad faith, breaking an unwritten but implied understanding that he would not be terminated without good cause. His firing, he said, was unjustified punishment for reporting his new boss’s prior activities and was a violation of the 1980 ruling by the justices barring terminations of employees for actions that uphold good “public policy.”
‘Performance Reasons’ Cited
Interactive Data replied that it already knew about the investigation of Foley’s new supervisor and had decided to give him a second chance with the company. Foley was actually trying to undermine his new boss, the company said, and his dismissal was for “performance reasons” and his refusal to accept a transfer to another job.
A Los Angeles Superior Court dismissed Foley’s suit and a state Court of Appeal upheld the dismissal, citing what it said was a well-settled legal principle allowing either an employer or employee to sever ties with the other “at will,” unless there is a collective bargaining, Civil Service or other written employment contract.
The appeals court ruling contrasted with other appellate rulings in recent years upholding wrongful discharge suits by workers. In one case, for example, a state appeal court held in 1981 that a candy company executive who had worked for the firm for 31 years could sue for wrongful termination on the grounds his longevity and his employer’s lack of criticism represented an implied contract that he would not be fired without good cause.
The state Supreme Court agreed to hear Foley’s subsequent appeal and first heard arguments in the case in June, 1986. But the court was unable to decide the issue before the departure of Chief Justice Rose Elizabeth Bird and two other court members, who were defeated in the fall election that year.
A reconstituted court, with three new appointees of Gov. George Deukmejian taking the bench, held reargument in April, 1987, but was not able to issue a decision until 20 months later.
In Thursday’s decision, the justices held that Foley could not sue on grounds that he was fired in violation of public policy. Any duty he had to report alleged misconduct would have served only the employer--not the public--and thus there was no “substantial public policy” barring a company from firing a worker for performing that duty, the court said.
The court, however, went on to hold that Foley could continue his lawsuit based on his allegations that Interactive Data’s conduct and personnel policies represented an “oral contract” not to fire him without good cause.
Courts in other states have upheld suits based on implied contracts, the justices noted, and the concept--a modification of the doctrine of “at-will” employment--has achieved “wide acceptance” in recent years.
But in the suit, Foley will be limited to recovering only lost pay and related economic loss for alleged violation of the contract, the court said. Courts in most other states that have considered the issue have rejected the idea that employees can seek damages for a tort, or civil wrong, based on wrongful discharge, the justices said. And without authorization by the Legislature, they will not be permitted to do so in California, the court said.
Extending the law to permit increased potential damages was not warranted in view of “countervailing concerns about economic policy and stability,” Lucas wrote. He noted also that employees already have numerous protections against unjust terminations under laws prohibiting race, age, religious and sex discrimination, as well as suits for violation of contract.
Lucas’ opinion was joined by Justices Edward A. Panelli, John A. Arguelles and David N. Eagleson.
Kaufman, in his dissent, said the majority was wrong in concluding that the issue of additional damages should be left to the legislative branch of government.
“The majority’s implicit fears of judicial activism are unfounded,” Kaufman said. “We overstep no institutional bounds or constitutional constraints in recognizing that a willful and malicious termination of employment is so offensive to community values that it may give rise to tort remedies.”
Mosk agreed with Broussard and Kaufman on the question of tort damages but went on to say he thought that Foley should be allowed to sue on grounds that Interactive Data violated public policy. Reporting to supervisors the possibility they had hired an embezzler “is in the best interests of society as a whole, and therefore covered by the public policy rule,” Mosk said.
Surveys in recent years indicate that employees are increasingly challenging what they see as wrongful discharges by their employers--and meeting with some success.
For example, a study by the RAND Institute for Civil Justice issued in September showed that wrongful termination suits filed in Los Angeles Superior Court grew from 90 in 1980 to 600 in 1986, representing about 60% of such suits filed in the state.
A survey released in February by San Francisco attorney Victor Schacter showed that in 1987, plaintiffs won awards in 61% of the cases in California that resulted in settlements or jury verdicts--contrasted to a success rate of 78% the year before. Excluding one $17-million verdict in an unusual case, awards in 1986 averaged about $483,000, the survey said.
