Q. Fresno Unified School District denied legal counsel to a high level administrator who is being investigated by the FBI.  What is an employer’s obligation to provide an attorney to an employee in a situation like this?
A. Whether an employer must provide a legal defense to an employee facing criminal charges is still an open question. And, there is one rule for public employees and another for private employees.
California Labor Code section 2802, which applies to private employers, provides that an employer must indemnify its employees “for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties . . . .” As such, an employer may be required to reimburse an employee for the cost of the defense of a legal matter, so long as the alleged action occurred in the scope and course of the employee’s employment. (See Grissom v. Vons Cos., Inc. (1991) 1 Cal.App.4th 52, 55.) The “scope and course of employment” is interpreted broadly and the duty of an employer to indemnify extends even if the employee’s conduct “does not benefit the employer, even though the act is willful or malicious, and even though the act may violate the employer’s direct orders or policies.” (Jacobus v. Krambo Corp. (2000) 78 Cal.App.4th 1096, 1102.) Moreover, the employer must indemnify regardless of whether or not the employee is exonerated. (Id. at 1101.) In other words, the key question is whether the employee’s wrongful conduct was committed during the performance of her employment – not whether a wrongful act was committed.
The above question is complicated, however, because courts disagree on two critical components that would make it clear whether or not an employer must provide an attorney to an employee in a criminal proceeding. First, it is unclear whether an employer must provide an attorney (on the front end) or simply reimbursement for the cost of an attorney (on the back end). In Jacobus, the court found that “[Section 2802] requires the employer not only to pay any judgment entered against the employee for conduct arising out his [or her] employment but also to defend an employee who is sued for such conduct.” (Jacobus v. Krambo Corp., supra, 78 Cal.App.4th at 1100.) On the other hand, in Grissom, the court notes that “[s]ection 2802 does not say that an employer must ‘defend’ an employee . . . .[but only that] if that expenditure is necessarily in direct consequence of the discharge of the employee’s duties, then the employer must ‘indemnify’ (i.e. reimburse) the employee.” (Grissom v. Vons Cos, Inc., supra, 1 Cal.App.4th at 57-58.)
The second question is whether or not Section 2802 even applies to criminal proceedings at all or whether it is applicable to only civil actions. In this regard, a California Court of Appeal, has flatly stated that “[t]here have been no California cases reaching the issue, and it appears to be an open one.” (Los Angeles Police Protective League v. City of Los Angeles (1994) 27 Cal.App.4th 168, 177.)
If it is ultimately determined that an employee’s actions, even if found to be wrong, were done in the course and scope of employment (and not in the employee’s personal capacity) an employer will likely be required to at least indemnify the employee for the cost of an attorney, if not be required to provide counsel. But, where there is a criminal investigation and it is not a civil matter, it is unclear as to whether an employer is even required to indemnify or defend at all. What is clear, however, is in the end, if the employee files a claim against an employer for indemnification and wins, that employee will not only be entitled to be reimbursed for attorneys’ fees in the underlying criminal action, but also in the indemnification lawsuit against the employer. This makes sense because Section 2802 includes reimbursement for “all reasonable costs, including, but not limited to, attorney’s fees incurred by the employee enforcing the rights granted by this section.” (Lab. Code § 2802(c).)
And, while there is one rule for private employers, there is yet another rule for public employers. Some courts have assumed that section 2802 applies to public employees. However, California courts have found that reimbursement of defense costs for public employees is governed exclusively by the Government Claims Act. The Government Claims Act also provides that the employer has to indemnify similar to the requirement of section 2802, but provides a notable exception where the employee acted with fraud, malice or corruption. Another exception to an public entity’s requirement to indemnify exists where the public entity is bringing an action against its own employee. Also, Government Code 995.8 specifically discusses providing a defense in a criminal action. That Code provision notes that the public entity may provide a defense in a criminal action “if: a) The criminal action or proceeding is brought on account of an act or omission in the scope of his employment as an employee of the public entity; and b) The public entity determines that such defense would be in the best interests of the public entity and that the employee or former employee acted, or failed to act, in good faith, without actual malice and in the apparent interests of the public entity.”