Founder and Managing Partner
Every once in a while we get an exceptionally bizarre call. We had one such recent call. Here is the scenario: Dealer calls because sales manager was hauled away from the dealership in handcuffs with Department of Justice officials standing by. At his arraignment he was charged with several counts of fraud and grand theft auto. The local news media was all over this story and highlighted the dealership in local coverage. Customers started complaining that the dealership employed a criminal. Employees quit, refusing to be associated with the alleged criminal. Good times. Saddled with personnel issues and lost sales resulting from the negative press, the dealership wanted to know how it could stop the assault on its business. Hopefully, the scenario is one you never face; however, it is a good idea to have a general understanding of what to do if your employee is arrested/charged, but not convicted, of a serious crime, which arrest hinders your reputation.
California places restrictions on employers from taking adverse action against its employees for an arrest when the arrest does not lead to a conviction. Labor Code § 432.7 prohibits an employer from utilizing “any record of arrest” in taking adverse employment action (such as suspension, reduction of duties or termination) against an employee. The reasoning is a conviction significantly differs from an arrest. A conviction is reliable evidence that a person engaged in the conduct alleged because the criminal justice system requires the highest degree of proof (beyond a reasonable doubt) for a conviction. But arrests alone are not reliable evidence that a person has actually committed a crime. Schware v. Board of Bar Examiners (1957) 353 U.S. 232, 241 (“[t]he mere fact that a [person] has been arrested has very little, if any, probative value in showing that he has engaged in misconduct”).
But what if your employee is arrested for (but has not been convicted of) a serious crime that could affect the employee’s ability to do his/her job, or even worse, could negatively affect your dealership’s reputation? If there is a clear and justifiable conflict between the job function and the nature of the offense, all is not lost for employers.
The statute permits employers to inquire about pending arrests. Specifically, Labor Code § 432.7(a) states, “Nothing in this section shall prevent an employer from asking an employee or applicant for employment about an arrest for which the employee or applicant is out on bail or on his or her own recognizance pending trial.” Therefore, discipline that is imposed as a result of an investigation or the employee’s failure to cooperate in it should be permissible. In conducting an investigation, be sure to ask the employee what happened and if he/she engaged in any wrongdoing.
But, what if your investigation results in the finding of no misconduct and your company is perpetually garnering negative media attention for the employee’s alleged fraudulent conduct, or worse: the employee was arrested at the dealership with news cameras and lights flashing. The strongest basis for taking any action in this scenario is found in a recent California case, Fowler v. Cedars-Sinai Medical Center (2014) Cal. App. Unpub. LEXIS 8425. In Fowler, an employee was placed on an unpaid suspension (not terminated) pending trial. The employer’s action was based on knowledge of the alleged wrongful conduct from three sources: a Department of Justice press release, an LA Times article, and the employee’s admission of the arrest. In Fowler, and in another case, Central Valley Chap of 7th Step Foundation v. Younger (1979), the term “record of arrest or detention” used in Labor Code 432.7 was found to refer only to specific records maintained by law enforcement agencies.
Following its review of the press release and article, Cedars-Sinai made the decision to place Fowler on an unpaid leave of absence. The decision to place Fowler on unpaid leave was based on the conclusion that because the charges against Fowler involved medical insurance fraud in billing Medicare for medical equipment, Fowler should not have access to Cedars’ premises as an employee until she was exonerated or provided exculpatory information. The Court in Fowler found that the LA Times article and Department of Justice press release were not “records of arrest” under that Labor Code section. Therefore, the employer could use news articles and press releases in assessing its risk of taking action again its employee suspected of committing fraud.
But Fowler is an unpublished case, which means its result is not binding on future cases and it cannot be cited in documents you may present to the Court to justify your action. And earlier published authority exists that could be used to support a contrary argument. That earlier authority is concerning for employers for two reasons: (1) it explicitly states that using an arrest as a factor in the termination decision is wrongful, and (2) it does not distinguish between the arrest, information about the arrest, conduct underlying the arrest, or a record of the arrest.
While there may be legitimate business reasons to keep the arrested employee away from work where he/she has access to sensitive information and could perpetrate the conduct he/she is alleged to have committed in the past, there remains a significant legal risk in taking any action against the employee. As Fowler is an unpublished case, any adverse change in the arrested employee’s employment leaves open the possibility of liability. However, in similarity with Fowler, should you determine that the employee poses a risk to other employees or customers, placing the employee on inactive or a suspended status without pay may prove necessary to avoid any harm to your company. Such determination should be made only through in investigation that is thorough, yet carefully focused on the employee’s underlying conduct (not the fact or the occurrence of the arrest) and potential harm in the employee continuing to work. While the scenario with which we were presented was extreme, the bottom line is that this is an unsettled issue in California and if you find yourself faced with an employee being taken away in handcuffs with news cameras rolling, you are best served by calling your employment attorney right away!
In the meantime, it is important that you develop a policy for applicants and employees concerning criminal conduct. Additionally, be certain that your company will uniformly adopt the policy and implement the same course of action among employees, as to avoid any claim of discrimination.