February 12, 2013

Internal Investigations: “The Good News Is That We Concluded That You Didn’t Do Anything Illegal; The Bad News Is That You Lied To Us During The Investigation, So You’re Fired.”

As courts and agencies battle over the standards applied to internal investigations, California courts have surprisingly sided with employers.  In a recent case, the California Court of Appeal found that while the FEHA protects an employee against retaliation based on his participation in such an investigation, it “does not shield an employee against termination or lesser discipline for either lying or withholding information during an employer’s internal investigation of a discrimination claim.”

In McGrory v. Applied Signal Technology, Inc., the employer hired an outside attorney to conduct an independent investigation of a complaint made by Dana Thomas, who alleged that her supervisor,  John McGrory, had unfairly put her on a performance improvement plan (PIP) based upon her gender and sexual orientation.  The attorney-investigator concluded that McGrory placed Thomas on a PIP in the good faith belief that her performance was substandard, but he also found that McGrory had violated the employer’s policy against making jokes about race and sex.

The attorney-investigator’s conclusions about McGrory’s conduct during the investigation were troublesome.  In particular, McGrory refused to turn over written performance appraisals he had done on other, similarly situated employees and he refused to identify other employees who had supposedly complained about Thomas.  McGrory was terminated based on the investigator’s report, namely his lack of cooperation with the investigator and his inappropriate jokes.

McGrory sued for wrongful termination, claiming specifically that he was fired because he participated in an internal investigation. The trial court granted the employer’s motion for summary judgment, and the Court of Appeal affirmed.  The court explained that, although the FEHA prohibits retaliation against an employee for participating in an internal investigation, such “participation” does not include lying to the investigator or withholding requested information, and that an employer can terminate an employee for such actions.

The McGrory decision also re-affirmed two principles of effective internal investigations – principles that have been highlighted in other California cases recently:

(1) In an internal investigation, an outside attorney is held to a “good faith” standard.  In other words, an outside attorney’s conclusions need not be correct, but have to be “objectively reasonable and based upon good faith.” See also Joaquin v. City of Los Angeles 202 Cal.App.4th 1207 (2012); Richey v. AutoNation, Inc., 210 Cal. App. 4th 1516 (2012);  Cotran v. Rollins Hudig Hall International, Inc. 17 Cal.4th 93 (1998).

(2) So long as outside counsel conducts an investigation in “good faith,” a court will be unlikely to second-guess personnel decisions made by the employer as a result of the investigation.  As this court stated, “we are not concerned with the wisdom of the termination, just with whether the Employer has proffered nondiscriminatory reasons.”

The McGrory decision serves as good guidance for one of the other central principles of internal investigations:  the purpose of the investigation is not to determine whether the law has been violated, but rather whether an employer’s policies have been.   The plaintiff’s “jokes” here may well have been found by a court to be isolated or sporadic, but the question the outside attorney investigating the complaint faced was not what a court would do but whether the employer’s zero tolerance policy had been violated.


Category: Investigations,