The Basic Premise
When an employee, acting within the scope of their employment, makes a mistake that leads to a lawsuit against both the employee and the company, it raises the question: Is the employer to pay for the employee’s legal defense? According to California law, the answer is definitely YES.
Legal Basis for Employer Duty
The obligation is based on California Labor Code Section 2802 which requires employers to indemnify their employees for all necessary expenditures or losses suffered as a result of actions performed in the course of their employment. This shall include legal defense expenses, even if the actions of the employee were a direct obedience of the employer orders- lawful or otherwise, unless the employee knew that their actions were unlawful at that time.
California Supreme Court’s Stance
The California Supreme Court emphasizes this obligation as a reflection of the state’s public policy to indemnify employees for claims and liabilities arising from their actions within the scope of their employment. The court considers this a method to guarantee that the economic burden of duty to hire an employer defense attorney is placed on the employer rather than the individual employee.
Extent of Employer’s Responsibility
Despite being most commonly called an “indemnity” obligation, this obligation also includes employer’s duty to protect the employee during legal processes. This is important because it provides the employee with indemnity against the financial crisis of legal defense, showing that indemnifying the employee is not adequate.
This extensive coverage is also strengthened by permitting the employees to recover the attorney’s fees and costs when they undertake enforcement through litigation, as provided in Labor Code section 2802(c).
Non-Waivability of Obligation
Of great significance, California’s Labor Code section 2804 states that any effort to waive these employee protections is deemed null and void, thereby affirming an employer must hire an employment defense attorney is a non-waivable right of employees to indemnification and defense by their employers. This law guarantees that the employees do not lose their legal rights and remedies under state laws despite any contractual provisions.
The effects of breaching of the obligation.
An employer’s effort to avoid this responsibility does not only violate the state law but also may result in other legal consequences, like with allegations of intentional interference with prospective economic advantage. This was manifested in the famous case of Edwards v. Arthur Andersen LLP in which the court struck out any contractual attempts to waive the employee’s right to indemnification, demonstrating the illegality of such contracts.
Exceptions to the Rule
It should be noted that the only case when this rule does not apply is when an employee is aware of the fact that he/she is acting against the law. Illegality alone is not enough, the employee must have known that such an action at the time of its perpetration was illegal.
Conclusion
For employers in California, defense and indemnification should be given to employees involved in lawsuits that arise from their employment acts. Failing to comply with this duty not only leads to the breach of state law but also may increase the liability for the employer.
