Seyfarth Synopsis: When confronted with a lawsuit naming an individual employee as a defendant, should California employers run from the employee or provide a defense? The duty to indemnify employees often leaves employers in a pickle, particularly as to allegations of sexual harassment.
This scenario has haunted many California companies: an employee sues the company for sexual harassment and also names the alleged harasser as an individual defendant. Particularly with today's #MeToo movement, an employer may want to distance itself from the alleged harasser. But what are the risks? The employer certainly does not want to give the impression of ratifying the alleged misconduct. Yet this is California. Does its law require the employer to get involved? The answer, like so much in California employment law, depends.
California has a peculiarly strong public policy requiring employers to indemnify employees sued for conduct occurring as part of their employment. Labor Code section 2802 codifies this policy. California employers, thus, must indemnify employees if their conduct falls within the scope of employment.
The duty to indemnify is not, however, a duty to defend. The statute merely requires California employers to indemnify their employees. Thus, while employers can choose to offer counsel to help defend an accused employee (and for strategic reasons may want to exercise that choice), California law permits an employer to decline to defend its employee and to see if the employee's conduct fell within the scope of employment.
The employee defendant, to claim indemnity, must show that the claim arose from the employee's employment. If the employee makes that showing—either during the litigation or in a separate action—the employer must pay all of the employee's necessary costs and fees, including attorneys' fees and any judgment.
The question for California employers, particularly when faced with sensitive allegations of sexual misconduct, is when does conduct fall within the scope of employment? For this, the answer is decidedly Californian—it depends.
To answer it, courts generally hold that sexual misconduct by its nature falls outside the scope of employment. But this does not mean that employers can simply run away from employees accused of misconduct. Employers may still be on the hook for the employee's defense costs if the employee's defense prevails. And this might be the result for even the most egregious allegations, if they turn out to be unproven.
To avoid getting caught in this pickle, smart employers check where the ball is before they decide to run towards a particular base. They thoroughly investigate a complaint's allegations to decide whether to stand with or run away from the employee named as a defendant. This being California, however, even the most prudent employer may not avoid liability. If a court ultimately absolves the employee, then the employer may still be responsible for the employee's fees. But at least the employer has played the game knowing where the ball is and where the employer stands.
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