CA Court of Appeals Rules on Wrongful Termination and Defamation Verdict Judgment

In California, workers are protected against termination based on discrimination, violations of contract, and retaliation. California also prohibits employers from asking employees to disclose arrests that do not lead to convictions or from using arrests that result in participation in a diversion program as a factor in a termination decision. Employers may not defame employees to third parties. In Tilkey v. Allstate Ins. Co., Cal. Ct. App. Case No. D074459, the appeals court considered whether a company's termination of an employee based on an arrest that resulted in his participation in a diversion program constituted a wrongful termination and whether the statements that it made about its reasons for his termination were defamatory.[1]

Michael Tilkey had worked for Allstate Insurance company for 30 years. He visited his girlfriend's home in Arizona on Aug. 16, 2014, and the two got into an argument after they had spent the evening drinking. Tilkey decided that he would leave her apartment. Before he left, he went out onto her balcony to get his cooler, and his girlfriend locked the door. He banged on the door to try to get her to open it, and she called the police. Tilkey was arrested and charged for disorderly conduct, defacing property, disruptive behavior, and possession of drug paraphernalia. The prosecutor attached a domestic violence enhancement on the disorderly conduct and defacement charges. Tilkey pleaded guilty to disorderly conduct, and the other charges were dismissed. He completed a diversion program for three months, and the disorderly conduct charge was subsequently dismissed. Tilkey's girlfriend sent an email to Allstate to tell them about his charges.

Before Tilkey was able to complete the diversion program and to have his disorderly conduct charge dismissed, Allstate fired him based on his arrest for an act of domestic violence. The company said that it fired him for threatening conduct or acts of violence against another person. Allstate filed the reason for terminating Tilkey with the Financial Industry Regulatory Agency, which can be accessed by any insurance agency or firm that hires licensed broker-dealers. Tilkey subsequently filed a lawsuit against Allstate, arguing that his termination was unlawful under Cal. Labor Code § 432.7 and that it amounted to compelled, self-published defamation.

The case did not settle before trial. At the trial, Allstate introduced after-acquired evidence that Tilkey had sent obscene material on the company's email that would have resulted in his termination without the disorderly conduct conviction. The jury returned a verdict in Tilkey's favor and awarded him $2,663,133 in compensatory damages. Out of that amount, $960,222 was for wrongful termination, and $1,702,915 was for defamation. The jury also awarded Tilkey $15,978,822 in punitive damages. Allstate appealed, arguing that the termination was not wrongful because it did not violate Cal. Labor Code § 432.7. It also argued that compelled, self-published defamation per se was not a cognizable cause of action. Finally, the company argued that punitive damages are not available in compelled, self-published defamation claims and that the punitive damages award was excessive.

Allstate argued that its termination of Tilkey did not violate Cal. Labor Code $432.7 and did not constitute a wrongful termination. Tilkey argued that his termination was wrongful because the company relied on his arrest record when it decided to fire him. Allstate also argued that compelled, self-published defamation is not a cognizable claim under California law and that its statement on the form that was submitted to FINRA was substantially true and was not defamatory. Tilkey argued that the statements that Allstate made on the form that was submitted to FINRA were substantially untrue and that compelled, self-published defamation per se was cognizable under the law.

Under Cal. Labor Code § 432.7, California employers may not require that their employees disclose arrests that do not lead to convictions. They are also not allowed to require their employees to disclose arrests that lead to participation in pretrial or posttrial diversion programs through which their charges are dismissed.[2] Employers may not use an arrest that resulted in participation in a diversion program as a factor for terminating an employee.

Defamation normally occurs when one party spreads false information about the defamed party to someone else. However, compelled self-defamation can happen when the defamed person is under a strong compulsion to disclose the defamatory information to a third party.

The court first considered whether Tilkey's termination was wrongful as a violation of Cal. Labor Code § 432.7. Allstate argued that a conditional plea agreement like the one that Tilkey entered into to complete a diversion program counted as a conviction under the law. Tilkey argued that it did not since his plea was withdrawn and the charge was dismissed when he completed the diversion program. Under People v. Kirk, 141 Cal. App. 4th 715 (2006), a conviction is not defined under the law and is subject to interpretation by the courts.[3] Under § 432.7, however, a conviction is defined as a finding of guilt, verdict, or plea even if a sentence is not imposed. The court found that the statute's plain language means that a plea can be considered to constitute a conviction even if the charge is later dismissed. The court then reviewed Tilkey's diversion plea agreement. While it said that his guilty plea would not be entered into his criminal record, it also said that his signature on the document constituted a guilty plea that would be entered if he failed to complete the diversion program.

As we have previously pointed out, California is an at-will state for employment. However, there are numerous exceptions to this rule that can make a firing a wrongful termination, including if the termination violates a statute or public policy.[4] In Tilkey's case, however, the court found that his plea on the diversion agreement form constituted a conviction under California law. The court also noted that if his offense had happened in California, he would not have been able to complete a diversion program because it was a domestic violence charge. Domestic violence diversion programs had been abolished in the state because they were ineffective and did not comport with the state's public policy to reduce domestic violence. The court found that Allstate did not violate § 432.7 when it terminated him.

The court then reviewed the defamation claim. The court found that there wasn't a conflict between defamation per se and compelled self-defamation. The court also found that FINRA's form does not ask for information related to non-securities reasons for termination. Despite this, Allstate still included information about his termination on the form that was not asked for or required. It found that Tilkey would be compelled to disclose this information to third parties because of the detrimental impact on his employment chances.

The court reversed the judgment on the wrongful termination claim but held the jury's verdict on the defamation claim. It found that the punitive damages were excessive for the defamation claim. It returned the case to the trial court for a determination of the proper amount of punitive damages.

If you were fired from your job and believe that your termination was based on unlawful discrimination, retaliation, or in violation of an employment contract, you may have legal rights to recover damages. Contact an attorney at the law firm of Steven M. Sweat APC to schedule a consultation and learn about your potential recovery rights by calling us at 866.966.5240.

• [1] Tilkey v. Allstate Ins. Co.
• [2] Labor Code - LAB.
• [3] People v. Kirk, 141 Cal. App. 4th 715 (Cal. Ct. App. 2006)
• [4] Wrongful Termination