California Employees Face Skeptical Courts on Punitive Damages

May 8, 2020, 8:56 AM

California’s laws are known for their strong defense of employee rights, but, as two recent appeals court rulings show, that doesn’t mean employees are protected from big cuts to punitive damages awards.

Late last month, an employment case decided in favor of an Allstate Insurance Co. employee saw a punitive damages award of more than $15 million tossed on appeal.

Michael Tilkey, a salesman with more than 30 years of experience, was charged with disorderly conduct in 2015, following a domestic dispute with his then-partner. Allstate fired him based on those charges, reporting to the Financial Industry Regulatory Authority that he engaged in threatening behavior toward another person.

Tilkey, who said he hadn’t threatened anyone, sued Allstate, alleging wrongful termination and defamation, and asserting Allstate had compelled him to defame himself to prospective employers, who would ask why he had been terminated after seeing his FINRA report, which is required for insurance brokers.

An appeals court agreed with the jury that $2.6 million in compensatory damages was warranted. And while it also agreed that punitive damages were allowed under California law, it determined that the 6-to-1 ratio of punitive to compensatory damages was excessive, given the relatively low reprehensibility of his supervisors’ actions.

A week later, a different state appeals court weighed a case involving a T-Mobile employee who was awarded $4 million in punitive damages after a jury determined he was retaliated against and that the employee’s anxiety was behind his termination.

But the jury’s $1 million compensatory damages award already included a punitive component, the appeals court decided, and a low level of reprehensibility made a 1.5-to-1 ratio between punitive and compensatory damages the federal constitutional maximum. It then slashed the punitive award to $1.5 million.

Employee-Friendly Juries

More jury awards of large punitive damages occur in California than just about anywhere else, said Curt Cutting, a defense attorney with Horvitz & Levy LLP in Los Angeles.

Cutting cited product liability litigation against Monsanto Co., where a California jury awarded a couple $2 billion in 2019 in a Roundup cancer suit.

Evan M. Tager, an appellate lawyer with Mayer Brown LLP in Washington, said the outcomes vary among the state’s counties. Los Angeles Superior Court, for example, is known colloquially as “the bank,” he said, because of the large sums awarded to plaintiffs by juries there.

And while 26 states have caps or strict limits on punitive damages—including Nebraska and New Hampshire, which don’t allow them at all—California has no maximums, Tager said.

“Businesses don’t like uncertainty, and there’s a lot when it comes to punitive damages,” said UC Hastings College of Law professor David Levine.

California operates with less precision than states where laws impose strict limits on punitive damages, he said. Overall, California’s is a qualitative system, and punitive damages exist to sting, but not crush, a defendant.

“The business perception is that California juries are overly friendly to employees,” Levine, who has written books on California civil procedure, said, “but somehow, businesses have persevered here.”

They’ve done so because, despite the lack of caps, the California Supreme Court has generally set a tone that requires lower courts to follow guidelines for punitive damages that are faithful to U.S. Supreme Court precedent, Cutting said. That case law doesn’t allow awards substantially greater than compensatory damages.

Big verdicts like the Roundup award, which was ultimately cut down to $87 million, usually get reduced by the appellate courts, Cutting said.

Scrutiny of Other Cases

The recent Allstate and T-Mobile cases show that punitive damages cuts can happen in employment litigation, said plaintiffs’ lawyer Carney R. Shegerian of Shegerian & Associates in Santa Monica.

In California, appeals courts closely scrutinize employment cases because they tend to be polarizing, he said. Consequently, Shegerian said, employment cases experience more judicial intervention than a typical personal injury case, and California appeals courts are tougher on plaintiffs than many people would think.

Although punitive damages awards are sometimes upheld, they aren’t usually published decisions, because appeals courts don’t want to set precedent with those cases, he said.

The problem with this additional scrutiny from both an employee and a policy perspective is that the defendant is frequently a large company, and small awards of a few million dollars don’t punish or have the intended affect of discouraging bad behavior, Shegerian said.

After a plaintiff pays taxes and attorney’s fees, there’s rarely a large amount left over, according to Shegerian, who said he’s never had a client with a windfall after being awarded punitive damages. “That seems to be lost on the judiciary to some extent,” he said.

Pandemic-Related Awards

Appellate court scrutiny could be felt acutely by workers laid off as a consequence of the coronavirus too, particularly in age-related cases, Shegerian said.

Pandemic-related cuts are largely affecting long-term employees, he said.

Tager, of Mayer Brown, said there’s a chance juries will award punitive damages in various contexts out of pique or sympathy for a plaintiff.

“As for wrongful termination, it’s conceivable that members of protected classes would claim that the crisis is a pretext for discriminatory termination,” he said. “But my instinct is that most employers are doing terminations even-handedly and should not be at significant risk of being hit with punitive damages.”

To contact the reporter on this story: Maeve Allsup in San Francisco at mallsup@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com

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