When Investigations Go Wrong: Lessons from a California Court of Appeal

By Lindsay Hesketh

Over the summer, a California court of appeal upheld a jury verdict in favor of a former senior VP who was discharged after his former employer had investigated and substantiated allegations of instructing subordinates to falsify company records. The employer had also received complaints accusing the plaintiff of gender discrimination and harassment, but the employer did not identify these allegations as grounds for his discharge. The former employee sued for wrongful termination, breach of the implied covenant of good faith and fair dealing, and defamation. He ultimately received $17,179,392 in combined compensatory and punitive damages. Although the court of appeal reduced the plaintiff’s original $24.3 million jury award, it upheld the jury’s verdict on all counts. 

Notably, the court found the defendant’s internal investigation problematic, which the court used to support pieces of its decision. The court took issue with the following, among other things.

  • The HR professional leading the investigation had no prior experience or training in managing internal investigations and lacked an understanding of the company records and relevant processes at issue in the investigation.
  • The employer failed to substantiate allegations against the plaintiff beyond statements made by persons with only secondhand knowledge.
  • The employer failed to consider whether witnesses interviewed had any motive to lie, even after discovering information that contradicted at least one material allegation against the plaintiff.
  • The employer failed to interview the plaintiff or allow him to respond to the allegations before concluding the investigation.

Employers can learn from these mistakes. Establish and follow an investigation plan in line with company policies and with input from experienced professionals, dig deeper than secondhand witness statements to support or refute allegations, consider the credibility of all individuals interviewed, and provide the accused with an opportunity to respond to the allegations.  For more, you can read the full decision here.