State Justices Say Workers May Sue Over Demotions : Labor: High court rules that employees can collect damages if firms violate their own disciplinary procedures.


In a major victory for workers, the California Supreme Court held Monday that employees may collect damages from companies that demote them in violation of established disciplinary rules.

The unanimous decision marked the first time the California high court has recognized the rights of workers to sue companies for improper demotions. In the past, workers could sue only for unlawful terminations.

“The employer’s right to demote, like the right to discharge, is not absolute,” wrote Justice Stanley Mosk for the court.

Employment lawyers predicted that the decision will spark more lawsuits by workers. “We are going to have the courts involved in every employment decision, which is just ridiculous,” complained Alan Berkowitz, a San Francisco labor lawyer who represents employers.


The decision surprised Berkowitz and others because the California Supreme Court has generally been more sympathetic to employers than to workers suing them. But Christopher E. Platten, who represented the employees in the case before the court, said the decision just ensures that employers follow their own rules in dealing with their workers.

“Employers in the state of California have to recognize that if they make a promise to an employee as to what rules are going to apply and how they will be treated in discipline cases, they are going to have to follow those rules,” Platten said. “It is that simple.”

The court’s ruling reinstates a $1.5-million jury award against Pacific Gas & Electric Co. Two longtime PG & E employees, C. Byron Scott and Al Johnson, sued the utility, alleging wrongful demotion, after officials reassigned them to entry-level jobs at substantially lower pay.

The two men, who had worked as supervisors, contend that their demotions were punishment for intervening on behalf of an employee accused of time card fraud after an investigation by PG&E.;

But utility officials said the fraud probe alerted them to problems with the men’s supervisorial practices and a potential conflict posed by their ownership of an outside engineering consulting firm they operated on their own time.

In August, 1989, the two men were suspended with only a brief explanation of the charges against them. They were placed in positions they had last held in the 1970s, and their salaries and benefits were cut about 25%.

“The company demoted the plaintiffs without giving them any notice, any opportunity to correct, any opportunity to respond meaningfully to the charge,” said Platten, their attorney.

“It was akin to a situation where a company would take a high-level executive and make that executive a janitor or a mail room clerk and say, ‘Just because we didn’t fire you, you can’t sue us.’ ”

At the time of the demotion, PG & E had an established set of guidelines for dealing with disciplinary matters, which called on the company to coach and counsel employees about what was required of them before disciplinary action would be taken.

During a trial, Scott and Johnson showed there was little, if any, evidence that their outside business interfered with their duties at PG & E. The jury awarded Scott $700,000 and Johnson $625,000 in economic damages for past and anticipated future lost earnings, and awarded them $75,000 each for emotional distress.

A divided Court of Appeal initially affirmed the verdict, but later reversed it, saying judicial involvement in employment decisions short of termination would intrude unacceptably into the employer-employee relationship.

The California Supreme Court, however, said the dispute could be treated like other contract cases. An employer’s right to demote an employee at will may be rebutted by evidence of a contractual agreement, such as a disciplinary policy, that says workers will not be demoted without good cause, the high court said.

Responding to PG & E’s claims that such a ruling would invite more lawsuits, the court said employers can alter their policies and practices so they do not create obligations they do not want to keep in the future. The court also noted that employees must show clear evidence that promises had been made and broken.

“Courts will not enforce vague promises about the terms and conditions of employment that provide no definable standards for constraining an employer’s inherent authority to manage its enterprise,” Mosk wrote for the court.

A spokesman for PG & E said the utility was disappointed by the ruling but could not comment further because it had not obtained a copy of the decision. Neither Scott nor Johnson could be reached for comment.

Platten said Scott, who is in his early 50s, took a severance package from PG & E and has left the utility. Johnson, in his late 40s, continues to work for PG & E, Platten said.