Wrongful Termination: Violation of Public Policy

Posted in Wrongful Termination on July 29, 2015

Yau v. Santa Margarita Ford, Inc., (Fourth District, August 26, 2014) 229 Cal.App.4th 144, 176 Cal.Rptr.3d 824, 38 IER Cases 1871, 14 Cal. Daily Op. Serv. 10,132, 2014 Daily Journal D.A.R. 11,814

A man who was terminated from his job as a service manager at an automobile dealership filed suit against his employer, asserting a cause of action for wrongful termination in violation of public policy. The plaintiff alleged coworkers were involved in an ongoing scheme to submit fraudulent warranty repair claims to Ford Motor Company, and that he was fired when he reported the fraud to the owner and general manager. He further alleged that his termination violated public policy set forth in laws prohibiting criminal conspiracy (Pen. Code, § 182), retaliation for refusing to participate in illegal activity (Lab. Code, § 1102.5), engaging in unfair business practices (Bus. & Prof. Code, § 17200), theft (Pen. Code, § 484), fraud and deceit (Civ. Code, §§ 1572, 1709), and various state and federal laws protecting consumer information.

The trial court sustained the dealership’s demurrer without leave to amend, finding that the plaintiffs’ third amended complaint failed to allege a violation of a policy that was “public” in the sense that it “inures to the benefit of the public” rather than serving merely the interests of the individual.  However, the court of appeal reversed, holding that the plaintiff had adequately pleaded a cause of action for wrongful termination in violation of public policy tethered to statutes proscribing theft and fraud:

Santa Margarita Ford argues this alleged conduct affects only the private interests of Santa Margarita Ford vis à vis Ford—and it is not conduct affecting “society at large.” The trial court agreed commenting “[t]he fact that a private business [Ford] has one of its franchise dealers playing fast and loose with warranty repair costs … it’s not a matter of public concern.”

Santa Margarita Ford relies on American Computer Corp. v. Superior Court (1989) 213 Cal.App.3d 664, 261 Cal.Rptr. 796 (American Computer), for the proposition a claim for wrongful termination cannot be based on allegations of an employee’s complaints to his employer about workplace criminal activity unless the report implicates a significant public interest going beyond the employer’s private interest.  In American Computer, plaintiff’s termination followed his reporting suspicions about possible embezzlement by his predecessor. … In ruling the alleged facts did not support a wrongful termination in violation of public policy cause of action, the court concluded plaintiff’s reports served the employer’s interests, but not the public’s. “The most that can connect [plaintiff’s] conduct with the public interest is the argument that by reporting his suspicions to his superiors he took action which might eventually prevent or uncover commission of a felony and thereby served the laudable goal of preventing crime. However, the potential for such a public benefit is not a public interest which is weighty enough to give rise to a claim for wrongful discharge.” … In short, American Computer concluded an employee’s report to company officers of suspected theft from the company by another employee, which theft does not itself implicate any other public policy considerations, does not support a claim for wrongful termination in violation of public policy.

But American Computer has been criticized by subsequent cases.… [W]e similarly decline to follow the reasoning of American Computer. American Computer is factually distinguishable from the present case because unlike American Computer, in which the alleged embezzlement was of the employer’s own property, here a third party, Ford, was potentially harmed. More importantly, Yau’s allegations he was terminated due to his complaints to his employer about alleged warranty fraud being perpetrated by coworkers served not only the interests of his employer but also served the “fundamental public interest in a workplace free from crime….” (citation) To the extent Santa Margarita Ford argues Yau’s allegations were not of “public” importance because they implicated only a contractual relationship between Santa Margarita Ford and its franchisor, Ford, we disagree. … Even if Yau’s allegations could be construed as complaints about breaches of Santa Margarita Ford’s contracts or franchise agreements with Ford, they also encompass potential violations of statutes proscribing theft (Pen. Code, §§ 484, 487) and fraud (Civ. Code, §§ 1572, 1709).