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Watch Out Employers! California Expands Tort Liability for Negative Statements About Terminated Employees

Author: Po Waghalter

Guest Editor: Christopher Schon

May 6, 2020 4:35pm

A recent decision by the Fourth District, Division One of the California Court of Appeal in Tilkey vs. Allstate Insurance Company (Tilkey v. Allstate Ins. Co., D074459 (Cal. Ct. App. 2020) established a new cause of action, “Compelled Self-Publication Defamation.” In simple terms, this theory of liability allows for lawsuits by individuals harmed by having to explain details of a termination, where the details of the termination are defamatory against himself or herself.

Here, plaintiff Michael A. Tilkey, sued his former employer, Allstate Insurance Company, for Wrongful Termination in violation of Labor Code § 432.7 and Compelled Self-Published Defamation, related to negative statements made in a report to Financial Industry Regulatory Authority (FINRA). As FINRA reports are available to prospective employers in his industry, Tilkey alleged Allstate’s statements in the report ultimately prevented him from obtaining employment again in his industry as an insurance agent. Specifically, Plaintiff alleged Allstate “compelled Plaintiff to self-publish defamatory statements about himself to prospective employers and others in his industry because Allstate stated that the reason for his firing was making a threat against another person. Allstate knew Plaintiff would be compelled to restate and publish the defamatory statement when seeking subsequent employment after three decades working with Allstate.”

As  background, on August 16, 2014, Michael Tilkey got into a dispute with a girlfriend, Jacqueline Mann, while in Arizona, which led to his arrest and criminal charges including domestic violence, possession or use of drug paraphernalia, and disorderly conduct. Tilkey entered a plea agreement that allowed for immediate dropping of the domestic violence and drug-related charges, and ultimate dismissal of the remaining disorderly conduct following completion of a domestic nonviolence diversion program. A couple of weeks after the incident, on August 31, 2014, Mann sent emails to Tilkey at work mentioning the criminal charges, which were discovered by the Human Resources department at Allstate. Approximately seven months later, on March 3, 2015, Mann sent an e-mail to Allstate mentioning the arrests as well as other allegations against Tilkey. Human resources conducted an investigation and ultimately indicated in an internal report that Tilkey had entered a diversion program for the disorderly conduct charge and that Tilkey’s behavior caused the company to lose confidence in him. Tilkey was terminated on May 27, 2015 with the explanation being that Tilkey was terminated for “engaging in threatening behavior and/or acts of physical harm or violence to any person, regardless of whether he/she is employed by Allstate.” Thereafter, Allstate filed a “Form U51” with FINRA reporting that Tilkey’s employment was terminated after allegations of “engaging in threatening behavior and/or acts of physical harm of violence to any person … Not securities related.” (Emphasis added.) A little over a month after Tilkey was terminated- on July 1, 2015- the remaining criminal charge of disorderly conduct was dismissed with prejudice.

Thereafter, plaintiff Tilkey, sued Allstate for Wrongful Termination in violation of Labor Code § 432.7 and Compelled Self-Published Defamation, with a prayer for punitive damages. The Trial Court ruled in Tilkey’s favor on both causes of action, awarding him $2,663,137 in compensatory damages, and $15,978,822 in punitive damages against Allstate. Allstate appealed as to both rulings, arguing – among other grounds not discussed here – that 1) termination was not wrongful as Labor Code § 432.7 was not violated, and 2) that Compelled Self-Published Defamation was not a viable tort theory, and specifically, not a cause of action. (Other grounds not discussed here include: (3) Allstate did not defame Tilkey because there was not substantial evidence its statement was not substantially true; (4) punitive damages were unavailable in compelled self-publication defamation causes of action; (5) the defamatory statement was not made with malice; and (6) the punitive damages awarded here were unconstitutionally excessive.)

Ultimately, the Court of Appeal disagreed with the Trial Court as to the Wrongful Termination cause of action and reversed the finding, but upheld the Trial Court’s recognition in a cause of action for Compelled Self-Publication Defamation. The Court of Appeal also found the punitive damages award to be excessive and remanded for proportionate recalculation.

“Conviction” clarified: a plea agreement may be a conviction under Labor Code § 432.7 (a)(1)

As to Wrongful Termination, at issue is Labor Code § 432.7 (a)(1) and its prohibition against the consideration of convictions that have been judicially dismissed in employment-related decisions. Tilkey argued that a plea agreement is not a conviction, as a guilty plea was never entered and no judgment had been made. However, the Court of Appeal clarified that a “conviction” does not require an entry of judgment, as supported by the statute’s legislative history.

Tilkey appeared in an Arizona Court on January 15, 2015 at which time the court’s certified document indicated that Tilkey knowingly, voluntarily and intelligently entered a plea to a misdemeanor charge of disorderly conduct fighting, and that the court accepted and entered a guilty plea that same day. Consequently, the guilty plea was considered a conviction pursuant to Labor Code § 432.7. Of significance, the misdemeanor charge was not dismissed until July 1, 2015- after Tilkey’s termination on May 27, 2015, it remained viable to be considered by Allstate prior to his termination. Thus, Tilkey did not have grounds for Wrongful Termination under Labor Code § 432.7, and the Trial Court’s finding of Wrongful Termination against Allstate was reversed by the Court of Appeal.

Compelled Self-Published Defamation as a cause of action

As to Compelled Self-Published Defamation, the Court of Appeal- for the first time in California- upheld the Trial Court’s judgment for the cause of action “Compelled Self-Published Defamation”, and allowed Tilkey recovery on that ground.

But what is Compelled Self-Published Defamation? In simple terms, it’s when a person has to explain a matter that unfairly (and unlawfully) makes them look bad, because someone else puts said matter out into the world, and in so doing, causes that person harm. In context with regard to the significant legal development from the case at hand, Compelled Self-Published Defamation occurs when a former employee is compelled to repeat defamatory statements made against him (to a prospective employer) in defense of negative statements made by his former employer, that the former employer should have known would have compelled the former employee to explain the negative statements- basically making himself look bad.

Here, the Court focused on Allstate’s indication on Form U5 to FINRA stating its grounds for Tilkey’s termination- which includes reference to allegations of “engaging in threatening behavior and/or acts of physical harm of violence to any person.” This form was available to every prospective employer in Tilkey’s specifically licensed field. The Court found that Allstate should have reasonably foreseen that Tilkey would be compelled to explain the situation, including making self-defamatory statements, and ultimately found that the jury’s conclusion amply supported by the evidence at trial. The Court additionally rejected Allstate’s claim of absolute privilege pursuant to Civil Code § 47(b), as the reported conduct was not securities related, which falls outside the scope of FINRA’s interest.

Of most significance to this ruling is the Court’s clear support for Compelled Self-Published Defamation as a cause of action. This serves as a win for employees, and affirmation of California’s public policy of supporting employees and prohibiting barriers to employment.  This, however, is certain to increase litigation against employers who unfortunately have not been cautious enough in communications when terminating an employee, in the new cause of action, “Compelled Self-Published Defamation” by the Fourth District, Division One of the Court of Appeal, certain to be cited and referenced for support state-wide.

Takeaway

Employers should exercise maximum caution when indicating anything negative about any employee, even in formal and mandatory reporting to licensing agencies, lest they become defendants in actions for Compelled Self-Published Defamation. The safe ground in the past has been to simply provide dates of employment, and to simply leave it at that. Better safe than sorry, employers!

 

1 The Form U5 is the Uniform Termination Notice for Securities Industry Registration. Broker-dealers, investment advisers, or issuers of securities must use this form to terminate the registration of an individual in the appropriate jurisdictions and/or self regulatory organizations (“SROs”). (https://www.finra.org/sites/default/files/AppSupportDoc/p015113.pdf)

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