Footing the bill for competent counsel to represent an employee accused of misconduct can be a wise financial decision, depending on the circumstances. And as a recent California appellate case illustrates, your payments cannot be used against you to hold your organization liable for the alleged wrongful act. We’ll explain the new decision and when it makes sense to aid employees in their defense.
Assault by Security Guard
Toufik Kadah, a security guard with Guardsmark Security, was accused of sexually assaulting janitor Eveilia Plancarte. Kadah pleaded no contest to criminal sexual assault charges, which meant he didn’t accept or deny the charges but agreed to punishment.
Guard and Security Service Sued
Plancarte then filed a civil lawsuit against Kadah for assault, battery, negligence, false imprisonment, and intentional infliction of emotional distress. She also sued Guardsmark for negligent hiring and supervision. The trial court dismissed the case. But Plancarte then requested a new trial based on what she said was new evidence that Guardsmark paid Kadah’s attorney’s fees in the civil lawsuit. Consequently, she claimed that Guardsmark should be held responsible for Kadah’s misconduct because Guardsmark showed it implicitly approved of Kadah’s wrongful acts by paying his attorney’s fees.
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Payment of Fees Doesn’t Equal Ratification
A California court of appeal ruled that Guardsmark wasn’t liable for Kadah’s misconduct because the alleged attack wasn’t a foreseeable consequence of Kadah’s employment activities as a security guard.
Also, Guardsmark did not ratify the wrongful acts by paying Kadah’s attorney’s fees. Rather, said the court, it was in Guardsmark’s interest to assure Kadah had adequate and reliable representation. If Kadah had poor representation, the company’s own defense would have been much more difficult. Thus, the court found Guardsmark made “a sound business decision” by paying the attorney’s fees.
Labor Code Requirements
The appellate court also pointed out that Labor Code Section 2802 requires an employer to indemnify an employee for expenses and losses that are a “direct consequence” of the employee’s duties. This means you not only have to pay a judgment entered against one of your employees for conduct arising out of their employment, but you must also defend an employee sued by a third person for such conduct.
This law doesn’t mandate that you defend employees whenever there is a potential for liability. But if you don’t do so and it turns out the acts were within the course and scope of their employment, you will still be required to pay your employee’s attorney’s fees and costs.
Here, said the court, by paying for Kadah’s attorney up front, Guardsmark both satisfied a statutory duty and potentially decreased the risk of the financial exposure it could face if Kadah couldn’t present a competent defense for lack of counsel.
Evaluate Your Options
Your decision whether to pay an accused employee’s legal expenses will generally depend on several factors, including how egregious the facts are and how important it is to strategically separate your organization from the employee. In some circumstances, you’ll want to align yourself with the employee, share an attorney, and create a united defense. Whatever your decision, this new ruling makes it less likely that paying the attorney’s fees can be used to show you approved of the misconduct.
Keep in mind that employees cannot waive their right to reimbursement for legal expenses covered by Labor Code Section 2802. An employee who is forced to sue to recover fees that should have been paid is entitled to recover costs and attorney fees for that action, too.