McGrory v. Applied Signal Technology, Inc.

Facts

The statutory framework. The case sits at the intersection of California’s at-will rule and the Fair Employment and Housing Act. “An at-will employee is subject to termination by the employer for no reason or almost any reason, except for a reason that violates a fundamental public policy recognized in a constitutional or statutory provision.” (McGrory, supra, 212 Cal.App.4th at p. 1514.) That public policy is expressed in part in FEHA, which “prohibits employment discrimination on the basis of sex.” (Ibid.) When the plaintiff was terminated in June 2009, Government Code former section 12940, subdivision (a) prohibited an employer from discriminating against an employee because of, among other traits, “sex.” (Id. at p. 1515, fn. 1.) The retaliation provision at the heart of the case, section 12940, subdivision (h), makes it unlawful “‘[f]or any employer … to discharge, expel, or otherwise discriminate against any person because the person has opposed any practices forbidden under this part or because the person has filed a complaint, testified, or assisted in any proceeding under this part.’” (Id. at p. 1525.)

The players and the complaint that triggered the investigation. John McGrory (the opinion calls him “Employee”) worked for Applied Signal Technology, Inc. (the “Employer”) from July 6, 2005, until his termination on June 23, 2009, rising from section manager to department manager and supervising about a dozen subordinates. (McGrory, supra, 212 Cal.App.4th at p. 1516.) One subordinate, contract administrator Dana Thomas, received a documented verbal warning and then a performance improvement plan (PIP). (Id. at pp. 1516–1517.) Rather than sign the PIP, Thomas complained — orally and in an eight-page single-spaced e-mail — that McGrory’s “‘[m]icromanagement’” could “only be explained by ‘sexual orientation and/or gender discrimination and harassment’” against her as an openly gay woman who had married despite Proposition 8. (Id. at p. 1517.) The court took pains to correct McGrory’s repeated insistence that Thomas “never lodged a complaint … for sexual harassment,” calling that characterization “revisionist history.” (Id. at p. 1517, fn. 4.)

The investigation and its findings. The Employer retained an outside employment attorney, Sejal Mistry, who interviewed McGrory and numerous subordinates and issued a 13-page report dated June 16, 2009. (McGrory, supra, 212 Cal.App.4th at pp. 1518–1519.) Mistry concluded McGrory “‘did not discriminate against Thomas on the basis of her sexual orientation’” or “‘her gender,’” and that Thomas had genuine performance problems. (Id. at pp. 1518–1519.) But Mistry also found that McGrory had “‘violated [Employer’s] policies on Sexual Harassment and Business/Personal Ethics,’” having made “‘comments or jokes of a sexual or racial nature on a regular basis’” — jokes he readily admitted, including one mocking an East Indian man’s accent and another making vulgar references to anatomy, which he continued telling after a female subordinate expressed discomfort. (Id. at p. 1519.) Critically, Mistry found McGrory “‘uncooperative and appeared to have intentionally misrepresented some facts during the course of the investigation’”: he refused to disclose his written rankings of subordinates and the identities of those who had complained about Thomas, and he denied that an e-mail-protocol item had been on a staff-meeting agenda — only for Thomas to produce the agenda showing it. (Id. at pp. 1519–1520.)

The termination — and the dueling accounts of why. CEO Bill Van Vleet, CFO Jim Doyle, and HR vice-president Michael Forcht discussed Mistry’s report over several days and decided to terminate. Forcht’s declaration listed three grounds: the policy violations; Mistry’s finding that McGrory “‘had been untruthful during her investigation and did not participate in the investigation good faith [sic]’”; and “‘our concern that [Employee’s] behavior … exposed the Company to a risk of future legal liability.’” (McGrory, supra, 212 Cal.App.4th at pp. 1520–1521.) McGrory’s own declaration told a narrower story: Doyle said the jokes “‘wasn’t the reason [he] was terminated, as he (Doyle) had been guilty of the same conduct,’” and that the only two reasons were that McGrory “‘was uncooperative during the investigation’” and had made “‘factual denials.’” (Id. at p. 1521.) A male was selected to take McGrory’s position. (Ibid.) Thomas, by contrast, remained subject to the PIP, was later demoted, and eventually resigned with a release and a payment of about $90,000. (Id. at pp. 1521–1522.)

Procedural history

McGrory’s unverified first amended complaint, filed June 4, 2010, pleaded three causes of action: gender discrimination (a wrongful-termination-in-violation-of-public-policy theory predicated on disparate treatment of male employees), wrongful termination in violation of several public policies, and slander. (McGrory, supra, 212 Cal.App.4th at pp. 1516, 1517.) He alleged he could not be fired for being male, for participating in the internal investigation, or for protecting coworkers’ confidentiality, and that misconduct discipline required notice, a hearing, and honest findings. (Id. at p. 1515.) The Employer moved for summary judgment or adjudication. The trial court granted the motion, finding the Employer had shown “‘a legitimate, nondiscriminatory reason’” and that McGrory had “‘failed to meet his burden of showing substantial evidence that [Employer’s] stated reasons … were untrue or pretextual,’” and that the slander statements were privileged. (Id. at p. 1515.) On appeal, McGrory abandoned the coworker-confidentiality and notice-and-hearing theories. (Id. at p. 1515.) The Court of Appeal, in a unanimous opinion by Presiding Justice Rushing, affirmed.

Issue

The principal question was whether the Employer’s summary-judgment showing — three articulated, nondiscriminatory reasons for the firing — was rebutted by triable evidence of pretext or discriminatory motive. Embedded in it were two distinct legal questions the court treated as dispositive. First, whether “being uncooperative or deceptive in an employer’s internal investigation is … a protected activity under state or federal law,” such that termination for that conduct could violate the public policy embodied in section 12940, subdivision (h). (McGrory, supra, 212 Cal.App.4th at pp. 1515–1516.) Second, whether McGrory raised a triable issue of antimale discrimination — and whether an employer’s inconsistency about which of several reasons truly motivated an at-will termination supports an inference of unlawful bias. The court also addressed whether the HR vice-president’s statement to a coworker about the firing was protected by the common-interest privilege of Civil Code section 47, subdivision (c). (Id. at p. 1516.)

Holding

Reasoning

The at-will baseline reframed the entire inquiry. The court anchored its analysis in the at-will rule: “The ultimate issue when discriminatory discharge is alleged is what … the employer’s true reasons were for terminating the employee.” (McGrory, supra, 212 Cal.App.4th at pp. 1523–1524.) Because “an employer need not have good cause to terminate an at-will employee,” the “reason for termination need not be wise or correct so long as it is not grounded on a prohibited bias,” and the employer satisfies its burden “by producing evidence of one or more reasons … that were ‘unrelated to unlawful discrimination.’” (Id. at p. 1524.) Operating under Code of Civil Procedure section 437c, the court held the Employer’s showing of three nondiscriminatory reasons shifted the burden to McGrory to produce substantial evidence the reasons “‘were untrue or pretextual, or that the employer acted with a discriminatory animus.’” (Id. at pp. 1522–1523, 1533.)

Deceptive participation in an internal investigation is not protected activity. This is the opinion’s signature move. McGrory argued that “‘[t]he public policy of California is to shield anyone participating in an investigation of discrimination from the possibility of retaliation,’” even an uncooperative and untruthful participant. (McGrory, supra, 212 Cal.App.4th at p. 1525.) The court rejected the premise that the Employer’s internal investigation was a “‘proceeding under this part’” at all. It read section 12940, subdivision (h) against title 2 of the California Code of Regulations, former section 7287.8, subdivision (a), which ties protected participation to “‘an investigation, proceeding, or hearing conducted by the … Commission or Department’” of Fair Employment and Housing — not a private employer’s inquiry. (Id. at p. 1526.) Steele v. Youthful Offender Parole Bd. did not help McGrory, because he never claimed to have participated in a DFEH proceeding; indeed, the court found “no California state decision … [had] identified the limits of ‘any proceeding under this part.’” (Id. at pp. 1526–1527.)

Federal Title VII authority supplied the answer. Because the relevant language of section 12940, subdivision (h) and 42 United States Code section 2000e-3(a) is similar, the court looked to federal precedent. (McGrory, supra, 212 Cal.App.4th at p. 1527.) Federal courts have held that the “participation clause” reaches official EEOC proceedings, not “private internal investigations by employers,” and that participation immunity “‘does not prohibit an employer from imposing discipline for an employee’s misbehavior during an internal investigation, such as attempting to deceive the investigator.’” (Ibid.) The court quoted Hatmaker — “‘Lying in an internal investigation is disruptive of workplace discipline’” — and Total System Services, which framed the decision to fire a liar as “‘basically a business decision … not for the courts to second-guess as a kind of super-personnel department.’” (Ibid.) Drawing the further distinction that refusing to cooperate with a discriminatory action may be opposition, but refusing to cooperate with an investigation “‘into a discrimination claim is not participation or assistance and is not a protected activity,’” the court found the federal decisions “eminently reasonable” and adopted the rule for FEHA. (Id. at pp. 1527–1528.)

Inconsistent reasons are not, by themselves, evidence of discrimination. McGrory’s lead pretext argument was that the Employer “gave conflicting explanations” — Forcht’s three reasons versus Doyle’s narrower account. The court conceded McGrory’s declaration “does tend to undermine the first and third reasons,” leaving “some inconsistency as to which of the stated reasons truly motivated” the decision. (McGrory, supra, 212 Cal.App.4th at p. 1531.) But it held that “there must be more than inconsistent justifications … to support an inference that the employer’s true motivation was discriminatory.” (Ibid.) Quoting Guz, the court explained that “‘an inference of intentional discrimination cannot be drawn solely from evidence, if any, that the company lied about its reasons. The pertinent statutes do not prohibit lying, they prohibit discrimination.’” (Id. at p. 1531.) This is the business-judgment principle in operation: “‘it is not enough … to disbelieve the employer; the factfinder must believe the plaintiff’s explanation of intentional discrimination.’” (Id. at p. 1532, quoting Reeves v. Sanderson Plumbing Products, Inc. (2000) 530 U.S. 133, 146–147.)

Lack of substantiation cannot do the work of motive evidence. McGrory tried to make the case turn on whether the Employer’s reasons were “adequately substantiated” — in effect, whether it had good cause. The court refused, distinguishing Cotran’s good-cause/honest-belief framework as inapplicable to at-will employment: “‘Where the employment contract itself allows the employer to terminate at will, its motive and lack of care in doing so are, in most cases at least, irrelevant.’” (McGrory, supra, 212 Cal.App.4th at pp. 1532–1533.) Therefore, “no inference of discrimination can reasonably be drawn from the mere lack of conclusive evidence of misconduct by the employee.” (Id. at p. 1533.) At most, an unsubstantiated reason “would give rise to an inference that Employer must have had other unstated reasons … but it would not necessarily give rise to a reasonable inference that Employer’s motivation was illegal.” (Ibid.)

The antimale-discrimination theory was unsupported. Reviewing the disparate-treatment and disparate-impact frameworks (Heard; Raytheon), the court found “no … evidence of derogatory, pejorative, or demeaning statements reflecting antipathy towards males” by any decisionmaker. (McGrory, supra, 212 Cal.App.4th at p. 1534.) McGrory’s disparate-discipline comparison — that he and Oliver (male) were disciplined while Thomas (female) was not — failed on the law: discipline turns on whether “‘the misconduct … was the same or similar to what a similarly situated employee engaged in,’” and McGrory was a manager, Thomas and Oliver his subordinates, and they engaged in “some different conduct.” (Id. at pp. 1535–1536.) The court noted a third male witness, Backens, suffered no adverse action, undercutting the claim that only males were punished, and that a sample of three was far too small for any statistical inference. (Id. at pp. 1535–1536.) Even accepting McGrory’s “cat’s paw” premise that the Employer could be liable for a biased investigator’s animus, there was “no evidence that Mistry made any antimale statements,” only “rank speculation.” (Id. at pp. 1536–1537.)

The slander claim — common-interest privilege and the absence of malice. McGrory alleged Forcht slandered him by telling coworker Irene Chen he was fired, after warnings, for being uncooperative. The court held the common-interest privilege of Civil Code section 47, subdivision (c) “‘appl[ies] to statements by management and coworkers to other coworkers explaining why an employer disciplined an employee.’” (McGrory, supra, 212 Cal.App.4th at pp. 1538–1539.) To defeat the privilege, McGrory needed malice — either ill will or a statement made “‘in reckless disregard of the plaintiff’s rights’” without reasonable belief in its truth. (Id. at p. 1539.) He showed neither. “‘[T]he issue is not the truth or falsity of the statements but whether they were made recklessly without reasonable belief in their truth.’” (Id. at p. 1540.) Because Mistry’s report furnished a reasonable ground for saying McGrory was uncooperative, and because Forcht’s direction to “cooperate” supplied a reasonable basis for characterizing the matter as a warning, the statements were privileged. (Id. at pp. 1540–1541.) Notably, in a lengthy footnote the court questioned, but did not resolve, the “unacknowledged marriage” of statutory and First Amendment malice concepts in the section 47 case law. (Id. at pp. 1539–1540, fn. 18.)

No concurrence or dissent. The panel was unanimous; Justices Elia and Duffy concurred in Presiding Justice Rushing’s opinion. (McGrory, supra, 212 Cal.App.4th at p. 1542.)

Significance

It is California’s leading statement that dishonesty in an internal investigation is not protected activity. Before McGrory, no California decision had marked the outer boundary of “any proceeding under this part” in section 12940, subdivision (h). (McGrory, supra, 212 Cal.App.4th at p. 1527.) The opinion imports the federal participation-clause line — limiting protected participation to agency proceedings and refusing to immunize deception in a private employer’s inquiry — and makes it California law. (Id. at pp. 1527–1528.) The practical upshot is large: an employer may discipline or fire a worker who lies to or stonewalls an internal harassment investigation without converting the discharge into actionable retaliation, even though investigation cooperation is generally encouraged by FEHA.

It reinforces the honest-belief/business-judgment overlay that animates CACI No. 2505 and No. 2513. By holding that disbelief of the employer is not belief in discrimination, and that inconsistency among reasons — even unsubstantiated ones — cannot alone carry a pretext case, McGrory operationalizes the Guz/Reeves teaching in the retaliation setting. (McGrory, supra, 212 Cal.App.4th at pp. 1531–1532.) It is regularly cited for the proposition that “[t]he pertinent statutes do not prohibit lying, they prohibit discrimination.” (Id. at p. 1531.) Its limit is its posture: it is a summary-judgment and at-will decision in which the plaintiff offered only speculation about the investigator’s bias.

It is a careful gender-discrimination and at-will precedent. The court refused to let a “cleared of discrimination” finding immunize an employee from discipline for the other misconduct the same investigation uncovered, and it declined to treat a small, dissimilar comparator pool as evidence of antimale animus. (McGrory, supra, 212 Cal.App.4th at pp. 1534–1536.) It also reaffirms that an at-will employer “need not either articulate or substantiate its reasons, except to provide an advance refutation for any inference that the true reason was illegal.” (Id. at p. 1533.) On defamation, it adds a thoughtful — if reserved — critique of how courts have blended statutory and constitutional malice under section 47. (Id. at pp. 1539–1540, fn. 18.)

Key quotes

“Government Code section 12940, subdivision (h), 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. … [P]ublic policy does not protect deceptive activity during an internal investigation. Such conduct is a legitimate reason to terminate an at-will employee.” (McGrory, supra, 212 Cal.App.4th at pp. 1527–1528.)

“[A]n inference of intentional discrimination cannot be drawn solely from evidence, if any, that the company lied about its reasons. The pertinent statutes do not prohibit lying, they prohibit discrimination.” (Id. at p. 1531.)

“Unless at-will employers are to be held to a good-cause standard for termination, no inference of discrimination can reasonably be drawn from the mere lack of conclusive evidence of misconduct by the employee.” (Id. at p. 1533.)

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Practice pointer

Open questions

Self-incrimination privilege. The court “indicate[d] no opinion on whether such conduct during an internal investigation might be privileged against a private employer’s action” because McGrory “did not invoke his privilege against self-incrimination.” (McGrory, supra, 212 Cal.App.4th at p. 1527, fn. 12.) Whether an employee may decline to answer on Fifth Amendment grounds without forfeiting protection is left for another case.

The outer limit of “any proceeding under this part.” The court observed that “[w]e find no California state decision to have identified the limits of ‘any proceeding under this part’ in Government Code section 12940, subdivision (h).” (McGrory, supra, 212 Cal.App.4th at p. 1527.) It resolved only that a deceptive participant in a private investigation is unprotected; it did not fully map which investigations short of formal agency proceedings might qualify.

Statutory versus constitutional malice under section 47. In an extended footnote, the court flagged “an arguable distinction between making a statement with a reckless disregard for its truth and simply lacking reasonable grounds for believing it true,” and declined to “implicitly constitutionalize the statutory privilege.” (McGrory, supra, 212 Cal.App.4th at pp. 1539–1540, fn. 18.) The proper definition of malice for the common-interest privilege remains unsettled.