Firing Employees for Off-Work Conduct May Be Legal

By John J. Manier

California employers breathed a collective sigh of relief when the Court of Appeal recently affirmed that Labor Code Sections 96(k) and 98.6 do not support a public policy against employee discharge based on lawful off-work conduct that is "otherwise unprotected by the Labor Code." Grinzi v. San Diego Hospice Corp., 120 Cal.App.4th 72 (Cal. App. 4th Dist. 2004).

Grinzi expands on the holding by the same appellate division in Barbee v. Household Automobile Fin. Corp., 113 Cal.App.4th 525 (Cal. App. 4th Dist. 2003), that Section 96(k) does not itself establish any public policy but only gives the Labor Commissioner jurisdiction over employee claims for violations of "recognized constitutional rights." In both Grinzi and Barbee, the court rejected far broader interpretations that could have restricted drastically employers' prerogatives to discipline employees for off-work conduct.

The Legislature added subdivision (k) to Section 96 in 1999. This amendment gives the labor commissioner jurisdiction over employee "[c]laims for loss of wages as the result of demotion, suspension, or discharge from employment for lawful conduct occurring during nonworking hours away from the employer's premises."

In 2001, the Legislature amended Section 98.6 to prohibit discrimination against any employee who has "engaged in any conduct delineated in this chapter, including the conduct described in [Section 96(k)]." Aggrieved employees are entitled to reinstatement and reimbursement of lost wages and benefits, and any employer who willfully fails to provide such remedies if ordered to do so is guilty of a misdemeanor.

The 2001 amendments to Section 98.6 extend similar protections to job applicants. Section 98.6(c)(2) establishes a narrow "safe harbor" for provisions in union and employment contracts which protect employers from "conduct that is actually in direct conflict with the essential enterprise-related interests of the employer and where breach of that contract would actually constitute a material and substantial disruption of the employer's operation."

The sweeping language of these Labor Code amendments caused widespread alarm in the employer community. Under the worst-case scenario for employers, a wide array of off-work conduct that had been merely "lawful," such as "moonlighting" and most types of employee fraternization, would be construed as "protected" activity and virtually off-limits as grounds for discipline. The presumption of at-will employment in Labor Code Section 2922 would be turned on its head.

These concerns were magnified by the prospect that Sections 96(k) and 98.6 would become statutory bases for claims for tortious wrongful termination in violation of public policy. See Tameny v. Atlantic Richfield Co., 27 Cal.3d 167 (1980).

In retrospect, however, such fears may have been exaggerated. Despite the breadth of the "lawful [off-work] conduct" language, Section 96 only describes claims that may be brought before the labor commissioner and does not expressly purport to create new substantive rights. Likewise, as noted in Barbee, the legislative history of subdivision (k) reflected no intent to expand employees' rights as to off-work activities.

To the contrary, an uncodified portion of the 1999 statute quoted in Barbee declared that the labor commissioner's protections are necessary to enable individual employees "to assert the civil rights otherwise guaranteed by Article I of the California Constitution" and to prevent employers from withholding such rights.

Based on Section 96 "as a whole," the Barbee court concluded that subdivision (k) "does not create any new public policies" but only "authorizes the Labor Commissioner to vindicate existing public policies in favor of individual employees." The court thus held that, to establish a public policy claim based on Section 96(k), the plaintiff must show he or she was discharged for asserting civil rights guaranteed by Article I of the state constitution.

The employer in Barbee discharged the plaintiff, a supervisor, for disobeying the human resources director's instruction that he either stop dating a subordinate employee or resign. The Court of Appeal held that the discharge did not violate the plaintiff's privacy rights or other constitutional civil rights. The court thus affirmed summary judgment for the employer.

The parties and the court in Barbee did not address the impact, if any, of the 2001 amendments to Section 98.6. However, that issue was decided in Grinzi.

Plaintiff Joan Grinzi alleged she was discharged because of her membership in a private investment group that the employer believed was an illegal pyramid scheme. Grinzi claimed that her termination violated public policy based on Sections 96(k) and 98.6 and the First Amendment right to free speech. The Court of Appeal affirmed the trial court's dismissal of Grinzi's lawsuit on demurrer.

As the court noted, a common-law tortious discharge claim cannot be broader than the statute or constitutional provision on which it is based. The court held that the First Amendment could not form the basis of Grinzi's public-policy claim, because it only protects the freedom of speech against government infringement and Grinzi was employed by a private entity.

In a footnote, the court rejected Grinzi's attempt to rely on "similar provisions of the California Constitution" because she failed to specify those provisions. Thus, the court dodged the issue of whether a private employer may be liable for tortious wrongful discharge based on the free-speech provisions of Article I, Section 2 of the state constitution, as well as the broader and unresolved question of whether this section proscribes only "state action." See Golden Gateway Ctr. v. Golden Gateway Tenants Ass'n, 26 Cal.4th 1013 (2001) (plurality, concurring and dissenting opinions).

The Grinzi court also reaffirmed Barbee's holding that Section 96(k) does not provide an independent basis for a public-policy claim. The court reached the same conclusion as to Section 98.6.

Although Section 98.6(a) prohibits discrimination against employees who engage in the conduct described in Section 96(k), the Barbee court had limited Section 96(k) to lawful off-work conduct implicating "recognized constitutional rights." The Grinzi court thus held that a plaintiff must allege she was discharged for asserting a constitutional right in order to plead a public-policy claim based on Section 98.6. Grinzi failed to satisfy this burden.

The court also addressed Section 98.6's prohibition against discrimination based on an employee's exercise "of any rights afforded him or her." Citing to an uncodified section of the 2001 amendments to Section 98.6 and the Legislative Counsel's Digest, the court concluded that the Legislature intended to limit the scope of this proscription to "individual rights otherwise protected by the Labor Code." Grinzi did not claim that her termination violated any Labor Code provision other than Sections 96(k) and 98.6.

Last, the court found that "mischief or absurdity" would result if the policy of Section 98.6 was extended to constitutional rights protected only against government interference. The court explained this would "severely limit" the statutory at-will presumption and "unduly interfere with 'the Legislature's goal to give law-abiding employers broad discretion in making managerial decisions.'"

Notably, the plaintiffs in Barbee and Grinzi did not file petitions for review with the state Supreme Court, and no published decision outside Division One of the 4th District has addressed the scope of Sections 96(k) and 98.6. Although the statutory analysis in Barbee and Grinzi is persuasive and should withstand the test of time, employers must exercise caution when considering discharge or lesser discipline based on employees' lawful off-work conduct, especially if the conduct is arguably protected by the state constitution or the Labor Code.

Barbee and Grinzi do not construe the safe-harbor language of Section 98.6(c)(2). Remaining unsettled is whether this narrow provision substantively limits employers' defenses to claims based on protected off-work conduct or simply codifies a small subset of these defenses without disturbing existing law.

For example, an alleged invasion of privacy may be justified if "it substantively furthers one or more countervailing interests," even if those interests are not "compelling." Hill v. NCAA, 7 Cal.4th 1 (1994). Although Section 98.6(c)(2) does not appear to negate such existing defenses, the question remains an open one.