Traps for Employers in Routine Unemployment and Workers Comp Proceedings

A number of recent California appellate decisions reveal hidden traps that may ensnare employers in administrative proceedings involving employee claims for unemployment or workers-compensation benefits. Such proceedings typically appear routine and uncomplicated. Nonetheless, missteps in handling those routine and relatively low-risk claims can greatly increase an employer’s exposure to liability in a separate civil action alleging wrongful termination, harassment, discrimination, retaliation, or similar claims.

Whereas employer exposure to claims for unemployment or workers-compensation benefits most often is relatively minor, employer liability in civil cases can be extreme, including the potential recovery of emotional-distress and punitive damages and attorney fees. Thus, employers who wish to reduce such risks should consider consulting with employment counsel before participating in such routine administrative proceedings.

For example, in Cuiellette v. City of Los Angeles, 194 Cal. App. 4th 757, 764 (2011), an employer hired a “workers compensation claims administrator … for its expertise in managing workers compensation cases.” The claims administrator advised the employer against allowing a disabled employee to work in a light-duty position because, for purposes of workers compensation, the employee was 100 percent disabled. That recommendation focused on intricacies of workers-compensation law and overlooked the employer’s independent obligation under anti-discrimination laws to provide reasonable accommodations to disabled employees. The result was a jury verdict against the employer of $1.5 million, and three separate appeals to avoid or undue that outcome.

More recently, the California Court of Appeal issued an unpublished decision revealing (in a muted way) another peril in the context of workers-compensation claims. The deadline to file a civil lawsuit alleging discrimination, harassment and retaliation typically expires within two years (depending on whether the employee files a charge of with the DFEH or the EEOC). Nonetheless, the appellate court in this case ruled that an employee who was fired in July 2006 could file a civil lawsuit alleging such claims against his employer in December 2011. The Court of Appeal found this late filing to be permissible because the employee had filed a claim for workers-compensation benefits in September 2006 alleging that the employer had harassed him and discriminated and retaliated against him. Although such claims cannot be addressed in the context of a workers-compensation claim, the appellate court said the statute of limitations on such claims did not start ticking because the employee had raised them in the workers-compensation forum in good faith.

Employers may feel a particularly strong sense of security in handling, without an attorney, employee claims for unemployment benefits, since state law says that rulings in such proceedings are inadmissible as evidence in a civil lawsuit. See Cal. Unemp. Ins. Code § 1960. Regardless, an administrative finding that an employee is entitled to such benefits, or that that an employer’s explanation for firing the employee is dubious, still may be admissible in federal court. See Baldwin v. Rice, 144 F.R.D. 102, 105-07 (E.D. Cal. 1992).

Even if the ultimate administrative findings are not worrisome, employers run the risk of making unfavorable or inaccurate admissions in such proceedings that can be used against them later in a civil lawsuit. Such unfavorable or inaccurate admissions by the employer appear to be exactly what an employee was hoping to obtain in Kelley v. California Unemployment Insurance Appeals Board, Cal. Ct. App. Case No. B244098 (Feb. 10, 2014). A copy of that appellate decision is available at this link.

The plaintiff in the Kelley case went on a stress leave from her job one month after she filed a claim with the DFEH alleging that her employer was retaliating against her for reporting sexual harassment. Her physician cleared her to return to work as of November 15, 2010, but she had hired a lawyer in the interim. Beginning on November 13, her lawyer exchanged emails with the employer’s lawyer demanding a number of assurances before the employee would return to work.

For instance, the plaintiff’s attorney insisted that the employer provide a written job description, a written statement of goals and objectives, written confirmation of the plaintiff’s job title, duties, pay and benefits, the status of the employee’s earlier request for vacation, and written confirmation that the plaintiff would not be subjected to retaliation for her earlier harassment complaints. The employer refused, characterizing the demands as an imposition of unreasonable conditions, and therefore terminated the plaintiff’s employment.

The plaintiff applied for unemployment benefits, but the employer contended that she was ineligible because she had voluntarily quit by insisting upon conditions that the employer had no obligation to satisfy. The California Unemployment Insurance Appeals Board ultimately found that the plaintiff was entitled to such benefits because the employer had discharged her “for reasons that did not amount to misconduct.” Clearly, such a finding could be very problematic for an employer if admitted as evidence for the jury to consider in a civil lawsuit.

Of course, at that point, such an administrative finding would be inadmissible in state court – but the story doesn’t end there. The employer challenged the administrative decision in a civil court. The trial court found that the email demands from the plaintiff’s attorney “were to some extent posturing for the threatened civil action,” but concluded that those emails were mere requests and not ultimatums or conditions. Accordingly, both the trial court and the Court of Appeal affirmed that the employee was entitled to the benefits because she did not quit. The appellate court held that the plaintiff’s “requests were not conditions or ultimatums and that [the employer] … could have waited to see whether she reported for work after the company declined to provide the requested information” rather than fire her.

In sum, the Kelley case no longer involves mere findings of fact concerning the circumstances of the plaintiff’s termination “made … in any action or proceeding before the [California Unemployment Insurance A]ppeals [B]oard.” Cal. Unemp. Ins. Code § 1960. On the contrary, such findings were made by a California trial court and affirmed by the California Court of Appeal. Consequently, the employer’s ability to dispute such findings in a subsequent proceeding may now be impaired.

The takeaway from these decisions is that employers face significant risk when it comes to litigating administrative claims for such benefits without first consulting with employment counsel, even though the potential damages may seem insubstantial. Obtaining guidance from legal counsel earlier may help to avoid significant liability in subsequent lawsuits.