Skip to content

Undercover Investigation Justifies Terminations

by Gerard Panaro, BOL Guru

Most, if not all employers, at some time or other, and oftentimes on a recurring basis, have problems with employee theft, dishonesty, fraud, and/or drug use. A recent case from California, Santillan v. BT Office Products, Inc., 2003 WL 22906876 (Cal.App. 1 Dist.) (unpublished), is therefore good news for employers. The decision upheld the dismissal of seven plaintiffs who were fired for theft and drug use, proved by an undercover investigation (actually, the court found that only six were fired; the seventh resigned). This article will focus on the court's critique of the investigation, which the plaintiffs challenged as inadequate and a pretext for discrimination (national origin; Hispanic).

Daily counts of inventory confirmed that expensive items in the warehouse were consistently missing. Eventually it was determined that the shortages were occurring on the night shift because the deliveries came in from wholesalers at that time. The company hired a private investigator firm called CC & Associates. CC placed its own "operatives" - employees who posed as employees of BT Office Products in two of BT's warehouses. The investigation lasted five months. CC operatives reported direct observations of employee theft of inventory items. At one location, the police arrested two employees for theft. Search warrants executed in connection with those arrests netted approximately $6,000 of BT inventory.

The CC operatives also learned of illegal drug activity at BT. They worked with law enforcement authorities in some cases to accomplish controlled buys of illegal drugs. CC reported that its operatives had purchased illegal drugs from eight BT employees. CC interviewed a number of employees it suspected of theft or drug use or sales. During the interviews, several of the employees admitted taking company property. Five of the plaintiffs were terminated for gross misconduct; a sixth was terminated in a RIF and the seventh quit.

The plaintiffs' suit, among other things, alleged wrongful termination in violation of the California Fair Employment and Housing Act. The complaint alleged that the reasons given for plaintiffs' terminations were a pretext for discrimination against Hispanic and/or Spanish- speaking workers. The trial court ruled in favor of the company, and the court of appeals affirmed.

First, the court said, an employer's reasonable attempts to investigate theft by employees, including interrogations, are considered to be a normal part of the employment relationship. Even if an employee has been promised that he or she will not be terminated without good cause, courts evaluating the existence of good cause will not interfere with the employer's exercise of its legitimate discretion. The court's role is not to determine whether the employee actually committed the misconduct asserted as the basis of the termination, but to assess the objective reasonableness of the employer's factual determination of misconduct. It is left to the employer to decide whether or not there is just cause for termination. This is an important point: The courts don't second-guess the employer; their purpose isn't to re-investigate the facts; the courts only look to see that the procedure was reasonable (fair?). Therefore, even if the employer proves to have been mistaken (e.g., the plaintiff, in fact, did not steal), its decision will still be upheld if reasonably, fairly arrived at. This may seem to place a premium on process, and it does, but that is still advantageous to the employer.

Therefore, the court of appeals said, BT was not required to show that the terminated employees actually stole inventory or were involved in drug use and sales. It only needed to establish that, at the time the decision to terminate the plaintiffs was made, the company, acting in good faith and following an investigation that was appropriate under the circumstances, had reasonable grounds for believing the plaintiffs had committed the act justifying termination.

In this case, the company identified shortages in inventory and merchandise from wholesalers. Managers checked with their leading wholesaler and determined that the problem was not with the wholesaler. They did daily checks on inventory and determined that the shortages were happening on the night shift at the warehouses. BT hired an outside investigation firm and allowed it to place undercover operatives in its warehouses. The reports from the investigation firm disclosed widespread theft of merchandise and workplace drug use and sales. BT allowed the investigation firm to interview specified employees. In general, the employees admitted taking home some items and claimed one of three excuses: (1) someone gave it to them or gave them permission to take it (sometimes confirmed as to some items); (2) the items taken were damaged or discarded; or (3) they thought it was acceptable to take damaged items without permission. Despite the explanations, BT terminated the employees implicated by the investigation.

To dispute the reasonableness of the investigation, the plaintiffs introduced the testimony of an expert witness (president of a corporate investigation agency and licensed private investigator) who expressed the opinion that the undercover investigation was defective in its inception, design, methods, execution and findings. He characterized CC & Associates as unsophisticated and reckless. He believed the investigation was predicated on unreliable rumors and suspicion.

The appeals court totally dismissed this testimony as inadmissible: the witness's opinions were "unsupported", the court said, observing that he was an investigator, not an expert on employment discrimination. The employer's investigation was appropriate under the circumstances; BT had a reasonable suspicion that theft was occurring. "An employer is not required to hire the best possible outside investigation firm", the court said. "It is sufficient, under [California judicial precedent], that it selected an established firm headed by experienced law enforcement professionals."

Reduction in Force Is Nondiscriminatory Reason for Termination
A voluntary or involuntary plan for reducing the workforce that takes age into account as one factor in the selection process does not discriminate on the basis of age, the Ohio Court of Appeals ruled in Howard v. Contech Construction Products, Inc., 2003 WL 22887954 (Ohio App 12 Dist. 2003). The case is worth study because of its description of the employer's voluntary and involuntary layoff programs and its response to the plaintiff's various legal arguments, all of which are often made in arguing age discrimination.

To cut costs and increase productivity, the company first offered a voluntary separation program (VSP). It applied only to headquarters employees who were at least 50 years old and whose age and years of service at Contech totaled at least 70. The eligibility requirements opened up the VSP to approximately half of Contech's employees at headquarters. Some individuals were excluded from eligibility, including Contech's executive management and three other employees whom management felt would be difficult to replace. Only six employees accepted the plan. The company thus instituted an involuntary separation program, which resulted in the termination of the plaintiff and four other employees. All five were over 50. The plaintiff sued for age discrimination. The courts ruled in favor of the company.

The plaintiff presented six arguments in support of his age discrimination claim, all of which the courts rejected. First, he noted that the voluntary separation plan applied only to employees over 50. However, the court noted, the company placed both an age and a years-of-service requirement on its VSP eligibility. Only employees with at least 20 years of service and at least the age of 50 were eligible to participate. "A voluntary separation plan that uses both of these factors does not indicate a policy of age discrimination", the court concluded. A voluntary separation plan that uses age with other factors does not prove discrimination.

Second, the plaintiff noted that the company knew and used employees' ages when determining to whom to offer voluntary separation. This fact, standing alone, the court said, does not prove age discrimination.

Third, the plaintiff argued that the voluntary and involuntary separation plans were related, in that only employees who were eligible for the voluntary plan (those 50 and older) were considered for involuntary separation. The plaintiff introduced the testimony of three company executives, including the supervisor of employee benefits, to this effect. The court, however, discounted this testimony because none of the witnesses were involved in the decision making process concerning which positions to eliminate. "Stray remarks do not substantiate a finding of discrimination when they cannot be linked to the decisionmaker bringing forth the adverse action", the court wrote.

Fourth, the plaintiff argued that employees were coerced into accepting voluntary separation and said that he was threatened that if an insufficient number of employees elected to resign under the voluntary program, involuntary separations would be necessary and any later package would not be as generous. The plaintiff also said that during a meeting with HR, he was encouraged to accept the VSP.

While noting that in the initial letter the employees received concerning the VSP, the above statements were made (if insufficient numbers failed to quit voluntarily, there would be involuntary layoffs), the letter also contained this statement: "We wish to stress that your termination of employment under the Program must be strictly voluntary. If anyone tells you that you must participate in the Program because you are going to be terminated, they are misinforming you. Please report any such communication * * *."

In addition, the plaintiff himself testified in his deposition that he understood the VSP to be truly voluntary: eligible employees had the option to take it or leave it. This evidence does not prove age discrimination, the court concluded.

Fifth, the plaintiff argued statistics which, he said, showed that the number of those terminated was statistically significant and probably did not occur by chance. But the court rejected this evidence, too, on the ground that the statistics represented only one factor, the age of the employees. They did not account for the skills of those employees or the business needs of the company. "As such," the court said, "they offer little to no support on their own as to an inference of age discrimination."

Sixth and finally, the plaintiff pointed to younger employees who were retained. The courts found this evidence unpersuasive because the three younger employees who were retained did not have the same job >
The court itself noted that a reduction in force is a legitimate, nondiscriminatory reason to lay employees off. Moreover, "A company does not have to be unprofitable in order to institute a reduction in force." The court described a RIF as the elimination of one or more positions. An employee is not "RIF'd" when s/he is replaced. "However," the court added, "a person is not replaced when another employee is assigned to perform his or her duties in addition to other duties, or when the work is redistributed among other existing employees already performing related work. A person is replaced only when another employee is hired or reassigned to perform the plaintiff's duties." In this case, the RIF was necessitated by a soft economy and a desire to improve the profitability of the company.

Employee's Failure to Document Disability Defeats His Claim
During his 12 years with the company, the plaintiff received written reprimands, poor performance reviews, and was placed on an "action plan" to improve his job performance. At one performance review shortly before his separation, he told management that his poor performance was due to disabilities: dyslexia and attention deficit hyperactive disorder. The company gave the plaintiff a letter asking for medical confirmation of the existence of a disability, with an explanation of the nature, severity and duration of the disability, how the disability impaired his activities, and what accommodations would be required. The plaintiff, on advice of counsel, refused to reply to the request. The company then sent a second letter, telling him to return to work by a certain date, and if he had confirmation of his disability, it would be discussed with him when he came back. The letter also warned that failure to return to work on the date specified would be treated as a voluntary resignation. The plaintiff did not return, but instead sued. In his complaint, the plaintiff alleged that Polyone was aware of his disabilities (depression, attention deficit disorder and dyslexia), that he was disciplined for poor work performance and mistakes which were due to his disabilities, and that he was terminated in retaliation for asking for reasonable accommodation. The trial court ruled for the company, and the court of appeals affirmed (Eisele v. Polyone Inc., 2003 WL 22900481 (Ohio App. 9 Dist.)).

One of the issues the court of appeals addressed was the plaintiff's argument that the company's request for documentary proof of his disability violated Ohio law (Ohio law on disability discrimination is the same as the federal Americans With Disabilities Act, with respect to this point). The plaintiff argued that he was disciplined for failing to answer questions that PolyOne had no right to ask. In rejecting this basis of appeal, the court ruled that an employer's request for proof of disability is not an adverse employment action: "However, once an employee requests an accommodation, an employer shows a good-faith attempt to comply when the employer meets with the employee, requests information about the conditions and limitations, and asks what accommodation is being sought." The request for information was part of a good-faith effort to comply with the request for accommodation, the court said. The plaintiff voluntarily terminated employment rather than attempt to meet the request.

A second issue that the court of appeals addressed was the plaintiff's argument that the company had already accommodated his disability for years. (The plaintiff made this argument in support of his claim that the company regarded him as disabled; if a plaintiff can show that the employer regarded him as disabled, then he comes under the protection of the ADA). However, the court said that other evidence in the case rebutted this assertion: any help the plaintiff may have received on the job was the result of "private agreements with other employees," some of whom, the court noted, became tired of the plaintiff's requests. Moreover, when management discovered the unauthorized assistance, the other employees were asked to cease rendering such aid, thereby disproving that the company regarded the plaintiff as disabled.

The court further pointed out that that it wasn't until disciplinary action was commenced toward the very end of the plaintiff's tenure with the company that he told management that he needed an accommodation. This is an important point, because it is a common tactic with employees facing dismissal: realizing that this time, they are in imminent danger of being fired, they claim for the first time that their problems are due to a disability, apparently in the mistaken belief that now they can't be fired.

To receive accommodation, an employee must request it, the court said. Notice that an employee desires an accommodation does not have to be in writing, does not have to mention disability statutes, and does not have to invoke the words "reasonable accommodation" as long as it is clear that the employee desires assistance for the
isability. In this case, the court said, as already noted, the evidence was that the plaintiff did not make a request for accommodation until the disciplinary action was well underway. For years, the plaintiff was making mistakes, receiving letters of reprimand, and warned about relying on other employees. At one point, his supervisor told him that it was his responsibility to do the work, and the plaintiff agreed with him. On this record, the court of appeals concluded, the plaintiff failed to prove that he suffered from a disability, was discriminated against, or suffered an adverse employment action due to his disabilities.

State Roundup Louisiana (5th Cir.): Successful employer not entitled to attorneys fees. The Fifth Circuit declined to award the employer attorneys fees against a plaintiff despite the employer's success in getting a judgment as a matter of law in its favor on the plaintiff's Americans With Disabilities Act claim (Vitale v. Georgia Gulf Corp., 2003 WL 22922292 (C.A.5, 2003)(Unpublished)). There are different standards for plaintiffs and employers. A court may but is not required to, award a successful employer attorneys' fees. Indeed, the employer in this case could not find any examples of when a court had to award fees to a prevailing defendant. Even to be eligible for attorneys fees, the employer has to show that the plaintiff's case was "frivolous." This is in contrast to how successful plaintiffs are treated in discrimination suits. The rule for them is that a prevailing plaintiff should ordinarily recover his or her attorneys fees unless special circumstances would render the award unjust. The rule is, the court explained, that "A prevailing defendant may not receive fees unless the plaintiff's claim 'was frivolous, unreasonable, or groundless, or that the plaintiff continued to litigate after it clearly became so.'" This suit, the court concluded, was not so frivolous or unreasonable as to justify attorneys fees for the employer.

Missouri (8th Cir.): $200,000 for sexual harassment is not excessive. Calling it "a case involving the question of human decency", the Eighth Circuit reversed a lower court's decision and reinstated a jury's verdict for the plaintiff in the amount of $200,000 in non-economic damages and $42,272 in economic damages based on a hostile environment sexual harassment claim (Eich v. Board of Regents for Cent. Missouri State University, 2003 WL 22860865 C.A.8, 2003)). Such an amount does not "shock the judicial conscience," the court of appeals said in reinstating the jury's verdict.

Colorado (10th Cir.): General harassment complaints not tied to gender don't state claim under Title VII. If the basis of the plaintiff's hostile work environment claim is simply complaints about the general environment in which she worked and she has not adequately linked any of her complaints to gender, then the claim will fail, the Tenth Circuit affirmed in Montabon v. City and County of Denver, 2003 WL 22905225 (10th Cir., 2003) (Unpublished).

California: Transfer to a comparable position is not an adverse job action. A California appellate court reversed a $300,000 jury verdict in favor of a plaintiff, finding that her transfer to another job due to her disability did not constitute an "adverse job action" under the California Fair Employment and Housing Act (Alvarado v. County of Imperial, 2003 WL 22890388 (Cal.App. 4 Dist. 2003) (Unpublished)). The plaintiff was a nurse with the Imperial County Department of Health. She was originally assigned to perform counseling for patients with HIV and prenatal counseling for pregnant women. She was diagnosed with a bipolar disorder. She was then assigned to tuberculosis (TB) counseling. She received the same pay and benefits and her hours and job >
The plaintiff must show that a change in status was substantial and material. It is not enough to show that a change in the terms and conditions of employment is merely contrary to the employee's interests or not to the employee's liking, the court said. An adverse job action must be more disruptive than a mere inconvenience or an alteration of job responsibilities. A materially adverse change might be indicated by a termination of employment, a demotion evidenced by a decrease in wage or salary, a less distinguished title, a material loss of benefits, significantly diminished material responsibilities, or other indices that might be unique to a particular situation. The employment action must be both detrimental and substantial. A mere oral or written criticism of an employee or a transfer into a comparable position does not meet the definition of an adverse employment action under the California FEHA.

New York: Plaintiff's release of Title VII claims valid, but her release of age discrimination claims not valid. Although the facts and circumstances established that the plaintiff's waiver and release of Title VII claims (national origin (Hispanic/Colombian female) and retaliation) was voluntary and knowing and therefore enforceable, her release of age discrimination claims was not valid because it did not comply with the Older Workers Benefit Protection Act, a federal district court in New York held in Cordoba v. Beau Dietl & Associates, 2003 WL 22902266 (S.D.N.Y. 2003).

The plaintiff was terminated because she was one of three employees in her department (accounting) and there was not enough work for three employees. The company had done a comparison of her and her co-workers' abilities and selected her for termination. She signed a release which stated (as excerpted in the court's opinion):
Payments and Benefits
3. Upon your execution of this letter agreement, you will receive a special lump sum payment equal to four (4) weeks of your current salary, less all federal, state and local taxes and withholdings.

... Complete Waiver and Release
5. You agree for yourself, your heirs, executors, administrators, assigns and agents to fully, finally and forever release and discharge BDA ... from any and all claims, actions, causes of action, suits and demands whatsoever, known or unknown, asserted or unasserted, at law or at equity, in any and all forums which you ... have had or may have including, but not limited to, any and all rights under The Age Discrimination in Employment Act, Title VII of the Civil Rights Act, The American with Disabilities Act, any claim of breach of any express or implied contract, wrongful, abusive or retaliatory discharge or employment discrimination whether based on federal, state or local law or judicial or administrative decision, and any and all claims arising out of the terms or conditions of your employment.

... Employment Inquiries
9. You should direct all inquiries from prospective employers to Michael A. Ciravolo. Prospective employers will be given only the dates of your employment, your last position held, duties, and last salary unless you expressly authorize in writing that further information may be disclosed. The stated reason for your separation from BDA will be 'resignation.'

... 11. By signing this agreement, you acknowledge that you have reviewed it carefully and understand its terms. You further acknowledge that you have been given an opportunity to consult an attorney concerning this agreement and its terms.

12. This proposal is null and void if not signed and returned to [Ciravolo] by June 6, 2001.

The court based its conclusion that the plaintiff knowingly and voluntarily signed the release on the following factors: 1) her education and business experience showed she was capable of understanding the terms of the release. 2) She had approximately four days to sign and return the release. 3) Although the plaintiff did not have an opportunity to negotiate the terms of the release, this fact alone, the court said, did not warrant a trial on "voluntariness." 4) The release was unambiguous and comprehensible (two pages). 5) The release stated plainly that the signer is aware of the right to consult an attorney, and the plaintiff did in fact discuss the release with an attorney before signing it. 6) The plaintiff received valid consideration for her waiver in the form of the company's promise to tell prospective employers that she had resigned.

North Carolina: firing employee for failing to pay court costs doesn't violate Title VII. Firing an employee because he failed to pay the employer costs stemming from a prior Title VII action does not violate Title VII. Nor does it constitute a wrongful discharge in violation of public policy, a federal district court in North Carolina held in The court characterized the assessment as in effect a debt the employee owes the employer (Settle v. Elixir Industries, 2003 WL 22928362 (M.D.N.C. 2003)).

The plaintiff sued his employer for discrimination under Title VII. The court ruled in favor of the employer and assessed costs of almost $2,000 against the plaintiff. The plaintiff remained employed by the employer he sued. However, company representatives told him that his employment was at risk if he did not pay the costs he owed. He told his supervisors that he was unable to pay at the time. As a result, he was terminated. He then filed another suit against the same employer, saying that his termination was unlawful retaliation and a wrongful discharge in violation of public policy (he later dropped the wrongful discharge claim).

In ruling in favor of the employer, the court held that the plaintiff's failure to pay the costs a court had assessed against him was not protected activity under Title VII. Title VII protects two types of activity, the court explained: participating in an investigation or proceeding under Title VII or opposing a practice believed by the employee to violate Title VII. The plaintiff's situation did not fall into either of these categories, the court concluded. "[D]isciplining an employee for failing to pay a sum that is effectively a debt owed to his employer is the type of reasonable control Congress intended to leave in the hands of employers", the court decided in ruling for the employer.

Ask the Expert
I am in the middle of doing employee evaluations and I have one employee whose skills and competence are fine, but who just has an abrasive personality and is hard to get along with. This is especially problematic because we have a small staff and we all interact with each other all the time. Is it legitimate to evaluate employees on the basis of personality traits?

A. Absolutely! You don't say how many employees you have. If there are fewer than 15, then federal anti-discrimination law doesn't apply, but to answer the question, let's assume that it does.

There are several problems with evaluating people on the basis of personality. Perhaps the worst is the unpleasantness of the task. It is one thing for a supervisor to say to a subordinate: You're computer skills aren't very good; it is another to say: You have a lousy personality; nobody likes you. The second problem, of course, that the courts are primarily concerned with, is that so-called "subjective evaluation criteria" can be used to mask discrimination. It's fine to say: I don't like you; but if the reason I don't like you is that you are female, black, disabled, Muslim, then the "personality conflict" is really a pretext for unlawful discrimination. A third problem is that subjective factors or personality traits can be hard to quantify or define and thus it is easier for the target of such criticism to rebut or refute it.

The single best way to quantify and objectify evaluations of a person's personal deficiencies in the workplace is to provide examples from as wide a variety of sources as practical. For example, don't say in the evaluation, "Doesn't get along with coworkers" or "Doesn't take supervision well" and let it go at that: give specific examples, from supervisors, co-workers, customers, etc. It is also very important in evaluations - across the board, not just when it comes to "subjective" factors, but perhaps especially when being critical of an employee's personal traits - to be honest, direct, blunt. Don't take away with the right hand what you "give" with the left. In other words, don't say in an evaluation, on the one hand, "Employee's inability to get along with co-workers is a real negative" and then add: "But, then, no one's perfect and we're all hard to get along with anyway," etc. The reason is that if you ever have to terminate this employee and the evaluations don't unequivocally support your reasons, you could be in for trouble. One case still cited for its legal analysis of the legitimacy of using subjective evaluation criteria, although it was decided 20 years ago, is Stones v. Los Angeles Community College Dist., 572 F.Supp. 1072 (D.C.Cal., 1983). In that case, a black female sued under Title VII because she was not selected as dean of the college. The college answered that the plaintiff was not interviewed or selected for one of the four open dean's positions because her application and references were not competitive with the other applicants. Witnesses for the college testified to the importance of personal traits, characteristics, skills for the position, the qualities most sought after in a dean applicant. A dean must deal with the faculty in curriculum and union problems; must function with an ever declining financial base; is required to be firm, but not authoritative; and, ideally, will have excellent personal relations skills, as the dean's position is often one of diplomat and representative. The announcement for the dean's position listed several required and desirable qualifications, such as personal characteristics necessary for working with students, employees and the public in an administrative capacity including wholesome personality, stability, good judgment, tact and ability to cooperate with others.

The evidence was that the plaintiff's references on these qualities were "mixed": "The most notable comments" on the plaintiff, the court observed, "on areas needing improvement concern plaintiff's need to improve personal relations with other employees. The comments in this regard include, 'Has difficulty relating to >
The court recognized that such job qualifications and evaluations are not totally objective in the sense that they are made by individuals who in large part have certain subjective ideas of the person's performance. "However," the court went on, "this problem arises in connection with any promotion selection process." It added: "If the defendants can show that a reasonable system of evaluation is applied in a nonarbitrary manner, the Court will not substitute its judgment for defendants'. ... The fact that a part of the selection process is based on subjective evaluations does not render the process inherently suspect unless there is independent evidence of discriminatory motivations." The law does not prevent an employer from using subjective criteria, but only prohibits intentional discrimination based on race.

About the Author:
Gerard P. Panaro has more than 25 years' experience in employment law and is available to assist readers on an individual basis. You may reach him at 202-861-1314. Mr. Panaro is of counsel with Howe & Hutton, in the Washington, DC office.

First published on 3/8/04

First published on 03/08/2004

Filed under: 
Filed under operations as: 

Banker Store View All

From training, policies, forms, and publications, to office products and occasional gifts, it’s available here:

Banker Store

hot right now

image description

Looking for effective, convenient training on a particular subject?

BOL Learning Connect offers more than 200 courses ON-DEMAND or on CD ROM from AML to Reg Z and every topic in between.

Search Topics