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Think Twice About A Lawsuit Against An Employee

A recent high profile trial illustrates the dangers employers face when they assert claims against their employees. On Friday, September 16, a Los Angeles Superior Court jury awarded bond trader Jeffrey Gundlach $67 million in a lawsuit that was started by the company that fired him — Trust Company of the West. Claiming that it feared he was going to abandon the company and set up a rival business, TCW fired Gundlach and then sued him for breach of trust and theft of trade secrets. Gundlach cross-complained for money he claimed TCW should have paid him. The jury agreed with TCW that Gundlach had acted inappropriately, but declined to award any damages for loss of business because TCW caused that loss itself by letting Gundlach go. After further proceedings, Judge Carl West will determine if TCW is entitled to all or any part of the $89 million in damages it claims to have suffered from the loss of trade secrets.

There are other types of claims that might tempt an employer when an employee leaves. The Family and Medical Leave Act gives an employer the right to recover group health premiums if an employee is able to return from leave but does not. An employer may try to recoup overpayment of compensation, as illustrated by Koehl v. Verio, Inc., 142 Cal.App.4th 1313, 48 Cal.Rptr.3d 749 (2006). Some employers give loans to employees, and then sue if they are not repaid by the time employment terminates, as illustrated by Maggio, Inc. v. Neal, 196 Cal.App.3d 745, 241 Cal.Rptr. 883 (1987). Filing those claims or any others risks a countersuit by the employee for such claims as wrongful termination, discrimination, harassment, and failure to pay overtime. Even if the employer’s lawsuit does not draw a countersuit, it may end badly. In FLIR Systems, Inc. v. Parrish, 174 Cal. App. 4th 1270 (2009), the employer was found to have proceeded in bad faith under the Uniform Trade Secrets Act (Cal. Civ. Code section 3426.4) and wound up on the hook for $1.6 million in fees and costs.

Bottom line: Don’t sue an employee unless you have suffered substantial damage, and then only if you have a rock solid case.