Davis v. Farmers Ins. Exchange

Facts

The statutory and doctrinal framework. The California Fair Employment and Housing Act (FEHA) prohibits an employer from discharging or discriminating against a person in the “terms, conditions, or privileges of employment” “because of” a protected characteristic, including age. (Gov. Code, § 12940, subd. (a).) To establish a FEHA disparate-treatment claim, an employee “must instead ‘produce evidence sufficient to show that an illegitimate criterion was a substantial factor in the particular employment decision … .’” (Davis, supra, 245 Cal.App.4th at p. 1320, quoting Harris v. City of Santa Monica (2013) 56 Cal.4th 203, 231–232.) That “substantial motivating factor” standard — announced in Harris — replaced the older “motivating factor” formulation to ensure “that liability will not be imposed based on evidence of mere thoughts or passing statements unrelated to the disputed employment decision.” (Davis, supra, at p. 1320, quoting Harris, supra, at p. 232.) Critically, Harris also held that once a plaintiff makes that showing, “the employer may avoid liability for damages, backpay or an order of reinstatement ‘by proving that a legitimate motive alone would have led it to make the same decision,’ absent the discrimination.” (Davis, supra, at p. 1320, quoting Harris, supra, at p. 211.) This is the same-decision defense, embodied in the post-Harris CACI Nos. 2430, 2507, and 2512.

The parties and the appointment agreement. William A. Davis became a Farmers insurance agent in 1977 and in December 1983 entered a “District Manager’s Appointment Agreement” for district No. 84. (Davis, supra, 245 Cal.App.4th at pp. 1310–1311.) Farmers agreed to pay him an “overwrite” — a commission “paid to managerial personnel on sales made by subordinates” — on business produced by his agents; Davis agreed to recruit and train enough agents to meet Farmers’s goals. (Id. at pp. 1310–1311.) The agreement was cancellable without cause on 30 days’ notice. (Id. at p. 1311.) In October 2006, Farmers cancelled it; Davis was 57. (Ibid.) Farmers paid him roughly $500,000 in “contract value,” deducting a $293,000 balloon payment on outstanding loans and recouping advanced commissions, with total deductions of $302,958. (Id. at pp. 1311, 1315.)

The discrimination and wage-deduction evidence. Davis showed he had received awards up to the year of his termination, that insurance sales in his district rose in each of the four preceding years, and that his final-year goals were higher than ever before. (Davis, supra, 245 Cal.App.4th at p. 1313.) He showed the district managers in his Southern Los Angeles Division skewed older, that Farmers terminated six of them between 2005 and 2007, and that management referred to the older managers as the “old guys,” the “old farts,” the “Geritol gang,” and a “bunch of old dogs,” and spoke of replacing “old tools” with “new tools.” (Id. at pp. 1313–1314.) Farmers countered that the division was a poor performer, that Davis had repeatedly missed recruiting goals and twice been placed on performance programs, and that the decisionmakers denied any role for age. (Id. at pp. 1314–1315.) Separately, Davis testified that Farmers deducted from his regular compensation the cost of required computer equipment, a website fee, leads, mailings, advertising, and his errors and omissions premiums — roughly $93,000 to $103,000 a year from 2004 to 2006. (Id. at pp. 1315–1316.)

Procedural history

Davis filed suit in September 2008; the operative fifth amended complaint asserted wrongful termination in violation of public policy, failure to pay wages under the Labor Code, and violation of the unfair competition law (UCL). (Davis, supra, 245 Cal.App.4th at pp. 1311–1312.) Significantly, Davis “did not assert a claim under the California Fair Employment and Housing Act.” (Id. at p. 1309.) After Harris was decided in February 2013 — while the case was pending — the trial court instructed the 2014 jury with the post-Harris versions of CACI Nos. 2430, 2507, and 2512. (Id. at pp. 1310, 1321.) The trial was bifurcated; in the first phase the jury found Davis was an employee, not an independent contractor. (Id. at pp. 1312–1313.) On the wrongful-termination claim, the jury found by special verdict that age “was a substantial motivating reason,” that poor job performance “also was a substantial motivating reason,” and that Farmers “would have discharged [appellant] anyway based on [his] poor job performance” — and so awarded no damages. (Id. at p. 1317.)

The trial court also granted Farmers a directed verdict on the wage claim, reasoning that absent a Labor Code section 2802 claim Davis could not contend amounts were improperly deducted to pay business expenses. (Davis, supra, 245 Cal.App.4th at pp. 1316–1317.) Posttrial, the court denied Davis declaratory and injunctive relief and attorney fees, finding no entitlement under Harris absent a FEHA claim and no basis for fees under Code of Civil Procedure section 1021.5. (Id. at pp. 1318–1319.) Judgment was entered for Farmers, with $181,356.79 in costs. (Id. at p. 1319.) Davis appealed. The Court of Appeal, Division Four of the Second District, in an opinion by Justice Manella joined by Presiding Justice Epstein and Justice Willhite — no separate concurrence or dissent — affirmed in part, reversed in part, and remanded. (Id. at pp. 1309–1310, 1338.)

Issue

The principal question was whether the reasoning of Harris — both its “substantial motivating reason” causation standard and its same-decision defense — applies to a common law claim for wrongful termination in violation of public policy where the plaintiff never asserted a statutory FEHA claim, such that the post-Harris instructions, including CACI No. 2512, were properly given. (Davis, supra, 245 Cal.App.4th at pp. 1321–1322.) Subsidiary questions followed from a substantial-motivation finding coupled with a same-decision finding: whether the plaintiff was nonetheless entitled to declaratory and injunctive relief and to attorney fees under section 1021.5. (Id. at pp. 1325–1330.) A separate issue was whether the trial court erred in directing a verdict on the wage claim — specifically, who bears the burden of proving the lawfulness of paycheck deductions for apparent business expenses. (Id. at pp. 1330–1338.)

Holding

Reasoning

The mixed-motive defense was properly raised and not invited or forfeited. Davis had not invited the error: CACI No. 2512 appeared in Farmers’s packet, and his counsel’s reluctant acquiescence was “insufficient to support invited error, which requires ‘affirmative conduct demonstrating a deliberate tactical choice.’” (Davis, supra, 245 Cal.App.4th at p. 1322 & fn. 11.) The court also held that “to be entitled to mixed motive instructions, the employer must raise as an affirmative defense that nondiscriminatory reasons standing alone would have caused it to make the same decision,” and that Farmers’s defenses of “Unclean Hands,” “Plaintiff’s Own Act,” and “Justification/Privilege” — alleging the termination was justified by Davis’s neglect of recruiting duties — were “sufficient to raise the defense.” (Id. at p. 1323 & fn. 14, citing Harris, supra, 56 Cal.4th at p. 240.)

The Harris framework applies to the common law tort because that tort must track FEHA. On the central question, the court joined a line of decisions extending Harris beyond the statute. It followed Mendoza v. Western Medical Center Santa Ana (2014) 222 Cal.App.4th 1334 — where the plaintiff abandoned his FEHA claim before submission yet the substantial-motivation standard still governed — quoting its conclusion that “[i]t would be nonsensical to provide a different standard of causation in FEHA cases and common law tort cases based on public policies encompassed by FEHA.” (Davis, supra, 245 Cal.App.4th at p. 1322, quoting Mendoza, supra, at p. 1341; see also Alamo v. Practice Management Information Corp. (2013) 219 Cal.App.4th 466, 479.) The structural premise was that a tortious-discharge claim must be “tethered to fundamental policies that are delineated in constitutional or statutory provisions,” and that “a common law tort claim based on the public policy against age discrimination articulated in the FEHA is subject to the FEHA’s limitations on the nature and scope of the statutory prohibition against age discrimination.” (Davis, supra, at pp. 1322–1323, quoting Gantt v. Sentry Insurance (1992) 1 Cal.4th 1083, 1095, and Esberg v. Union Oil Co. (2002) 28 Cal.4th 262, 272.) From the rule that a discharge not cognizable under FEHA “cannot offend fundamental public policy,” the court drew the dispositive inference: “If claims for wrongful termination in violation of public policy must track FEHA, it necessarily follows that jury instructions pertinent to causation and motivation must be the same for both.” (Davis, supra, at p. 1323.) The court rejected Davis’s attempt to accept the post-Harris causation instruction (CACI No. 2430) while resisting the mixed-motive instruction (CACI No. 2512), finding he “fail[ed] to articulate a coherent reason for applying the California Supreme Court’s reasoning in Harris to causation, but not motivation.” (Id. at p. 1323, fn. 12.)

The same-decision finding leaves no monetary remedy. Tracking Harris, the court explained the consequence. Where the employee proves substantial motivation but the employer proves it “‘would have made the same decision in any event,’” the plaintiff is not entitled to reinstatement or backpay, because such relief would not redress discrimination “‘if legitimate, nondiscriminatory reasons would have led the employer to terminate the employee in any event,’” and would award “‘an unjustified windfall.’” (Davis, supra, 245 Cal.App.4th at pp. 1324–1325, quoting Harris, supra, 56 Cal.4th at pp. 232–233.) The same logic foreclosed economic and noneconomic damages, the court adopting Harris’s “fair supposition that the primary reason for the discharged employee’s emotional distress is the discharge itself.” (Davis, supra, at p. 1325, quoting Harris, supra, at pp. 233–234.) In short, “a termination decision substantially motivated by discrimination is not compensable in damages under [Government Code] section 12940(a) when an employer makes a same-decision showing.” (Davis, supra, at p. 1325, quoting Harris, supra, at p. 234.)

The Harris non-damages remedies require a properly pleaded and supported claim — which Davis lacked. The court acknowledged Harris’s teaching that the unavailability of damages “need not make a finding of unlawful discrimination an ‘empty gesture,’” because proof of substantial motivation “‘may warrant a judicial declaration of employer wrongdoing’” and, in appropriate circumstances, injunctive relief and fees. (Davis, supra, 245 Cal.App.4th at pp. 1325–1326, quoting Harris, supra, 56 Cal.4th at pp. 234–235.) But those avenues failed here. Declaratory relief “must be specifically pleaded in the complaint,” and Davis pleaded none; the only injunctive relief he requested was tied to the UCL’s wage-withholding theory. (Davis, supra, at pp. 1325–1326.) Nor had he preserved the point: though Harris predated trial by nearly a year, he never amended to add such relief and instead insisted Harris had no application because he pleaded no FEHA claim. (Id. at p. 1326.) And even had the UCL claim been reached, a UCL injunction requires “a threat that the wrongful conduct will continue,” which the record did not show: Davis’s injuries were “all in the past,” he was no longer employed by Farmers, and the jury found no age role in any other employment decision — its verdict reflecting “at best … a determination that appellant’s age played a non-pivotal role in his discharge.” (Id. at pp. 1326–1328.)

Attorney fees fail under both FEHA and the private attorney general statute. FEHA fees under Government Code section 12965, subdivision (b) are confined to “civil actions brought under this section,” and because “[a]ppellant did not bring an action under FEHA, … nothing in Harris suggests its fee provision should be expanded for use outside that context.” (Davis, supra, 245 Cal.App.4th at p. 1328.) Although Code of Civil Procedure section 1021.5 can support fees in a wrongful-discharge case, the trial court reasonably found the criteria unmet: the verdict “did not result in the enforcement of an important right affecting the public interest,” nor confer a significant benefit on the public, the findings being personal to Davis. (Id. at pp. 1328–1329.) And the financial-burden factor cut decisively against him: section 1021.5 fees are appropriate only where “the cost of the claimant’s legal victory transcends his or her personal interest,” whereas Davis “sought over $10 million in damages” plus hundreds of thousands in wage deductions, making it “reasonable for the court to find that at every critical juncture appellant expected a substantial financial recovery.” (Id. at pp. 1329–1330.)

The directed verdict on the wage claim was error because the employer bears the burden on deductions. Having been found an employee, Davis was entitled to Labor Code sections 221 and 224, which “make it unlawful for any employer to collect or receive from any employee any part of wages theretofore paid,” subject only to narrow exceptions. (Davis, supra, 245 Cal.App.4th at pp. 1331–1332.) Shifting “the employer’s cost of doing business to the employee” is impermissible; the remaining deductions appeared on their face to be “for standard business expenses, not chargeable to an employee, even a commissioned sales employee.” (Id. at pp. 1333–1337.) Crucially, the court reallocated the burden: while a section 2802 plaintiff must prove out-of-pocket expenses were necessarily incurred, “that burden does not apply to the wage claim presented here, where appellant established that Farmers took deductions for apparently business-related expenses directly from his paychecks. Under Labor Code sections 221 and 224, the employer bears the burden of establishing that such deductions are authorized by law.” (Id. at p. 1337.) Davis’s prima facie showing entitled him to a jury, so the directed verdict was reversed and the claim remanded for partial retrial — though “[n]othing in our opinion may be construed to revive the Labor Code section 2802 claim.” (Id. at pp. 1337–1338 & fn. 26.)

Significance

Davis is a leading post-Harris decision on the reach of the same-decision defense, and the principal authority extending it to a plaintiff who pleads only the common law tort. Harris itself was a FEHA case, and Mendoza and Alamo involved plaintiffs who had at some point asserted FEHA claims; Davis closes the gap by applying the framework even where “appellant did not assert a claim under the California Fair Employment and Housing Act” at all. (Davis, supra, 245 Cal.App.4th at pp. 1309, 1322–1323.) The doctrinal engine is the tethering principle of Gantt, Stevenson, and Esberg: because the tort borrows its content from FEHA, it must also borrow FEHA’s causation standard and same-decision limitation — a plaintiff cannot escape the statutory ceiling by recasting a discrimination claim as a common law tort. The decision validates CACI Nos. 2430, 2507, and 2512 for public-policy cases and confirms that an employer may obtain the mixed-motive instruction by pleading ordinary justification defenses, not a specially labeled “same-decision” defense. (Id. at p. 1323, fn. 14.) It also shows that Harris’s non-damages remedies are real but conditional — requiring a pleaded, preserved claim and, for injunctions, a live threat of recurrence — and the independently important wage holding shifts to the employer the burden, under sections 221 and 224, of proving facially business-related paycheck deductions lawful.

Key quotes

“If claims for wrongful termination in violation of public policy must track FEHA, it necessarily follows that jury instructions pertinent to causation and motivation must be the same for both. Accordingly, we conclude the trial court did not err in giving the instructions set forth in the CACI model jury instructions.” (Davis, supra, 245 Cal.App.4th at p. 1323.)

“In short, ‘a termination decision substantially motivated by discrimination is not compensable in damages under [Government Code] section 12940(a) when an employer makes a same-decision showing.’” (Davis, supra, 245 Cal.App.4th at p. 1325, quoting Harris, supra, 56 Cal.4th at p. 234.)

“However, that burden does not apply to the wage claim presented here, where appellant established that Farmers took deductions for apparently business-related expenses directly from his paychecks. Under Labor Code sections 221 and 224, the employer bears the burden of establishing that such deductions are authorized by law.” (Davis, supra, 245 Cal.App.4th at p. 1337.)

Read the full opinion (Justia) →

Practice pointer

Open questions

The opinion leaves several threads open. First, the injunction ruling turned on a thin record — a single comparator (Glenn Smith) terminated five years later — and on the jury’s having made “no finding that age played a part in any other employment decision”; it leaves unsettled what pattern evidence or jury findings would support a UCL or Harris-style injunction against ongoing age discrimination after a same-decision verdict. (Davis, supra, 245 Cal.App.4th at pp. 1327–1328.) Second, because Farmers raised the defense through general justification defenses, the precise pleading floor for a mixed-motive instruction remains imperfectly defined. (Id. at p. 1323, fn. 14.) Finally, the court resolved the wage claim only at the prima facie stage; it did not decide which deductions are unlawful, and it distinguished a section 2802 claim (employee bears the burden) from a sections 221/224 deduction claim (employer bears the burden) without mapping how courts should sort deductions sounding in both. (Id. at pp. 1337–1338 & fns. 26–27.)