As layoffs occur nationwide, employers are grappling with how to calm employees’ nerves. But giving an employee false reassurances about job security only to later demote or lay off the person could lead to a costly workers’ compensation claim for stress. A new California Court of Appeal ruling illustrates that acting in good faith shields you from these payouts.
City Cuts Back Personnel Budget
David Gullet was a park supervisor for more than 30 years with Oakland’s parks and recreation department. Eventually, Anthony Acosta, the department’s director, recommended to Gullet that he transfer to a management assistant position, as middle-management positions like his would probably be eliminated from the budget for the following year.
Employee Goes On Workers’ Comp After Demotion
Gullet did transfer to a management assistant position. This new appointment wasn’t formalized, but Acosta assured Gullet there was budgetary authority for it. But after he was in the job five months, the department underwent a reduction in force and Gullet was demoted to a lower position as park supervisor.
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Gullet considered the demotion “the last straw” and quit. He also filed a workers’ comp claim for stress-related injuries that he said resulted from the demotion.
When Psychiatric Injuries Are Compensable
Under California workers’ comp law, a psychiatric injury isn’t covered if the employer can demonstrate that it was substantially caused by a lawful, nondiscriminatory, good-faith personnel action. This rule, which took effect in 1999, was enacted in response to the increase in workers’ comp fraud and the proliferation of compensation cases with claims of psychiatric injuries.
Board Grants Disability Benefits
The Workers’ Compensation Appeals Board concluded that Gullet’s demotion wasn’t a good-faith personnel action because management misled him by suggesting he would avoid demotion if he transferred to a different position. And finding that the demotion was a substantial cause of Gullet’s psychiatric injury, the board granted him $25,000 in disability payments and compensation for further medical treatment. The city appealed.
Court Says Worker Not Entitled To Benefits
A California appellate court sided with the city and threw out the benefits award. The court said that the personnel-decision exemption for psychiatric injuries applies in circumstances in which a regular and routine personnel decision is reasonable and the employer makes it and carries it out with subjective good faith. The court explained that the rule was meant to furnish employers with a degree of freedom in making regular and routine personnel decisions, such as discipline, evaluation, transfer, demotion, layoff and termination.
In this case, the court acknowledged that Acosta might have given Gullet reassurances of job protection that were unfounded. However, there was no evidence that Acosta intentionally misled Gullet. Rather, the demotion was a regular and routine employment event and was done in a reasonable manner with no hint of improper motive. As such, the court ruled, the demotion was carried out in good faith, and Gullet wasn’t entitled to collect workers’ comp benefits for his psychiatric injury.
Good-Faith Actions Protected
This case illustrates how important it is to deal with employees in good faith. Personnel actions cannot involve outrageous conduct. They must be made in a manner that is honest and with a sincere purpose, without intent to mislead, deceive or defraud the employee. And if downsizing may be in your company’s future, caution managers that although they can help employees transfer into “safe” positions, they should scrupulously avoid false assurances or misleading statements to employees about job security.