Employers: Malicious Prosecution Claims Against Employees
Litigating wage and hour claims can be frustrating. Not only do employers have to incur legal expenses, they also have to sometimes defend inflated and inaccurate claims.
California law offers defendants a mechanism for combatting false claims by filing a malicious prosecution lawsuit. However, it is not without its challenges. A defendant must litigate the underlying action to completion, prevail, and then prove in a separate proceeding that the plaintiff knowingly litigated false and malicious claims.
So – what happens when an underlying action is resolved in a settlement that can be perceived as favorable to the employer defendant? Can a defendant thereafter pursue a malicious prosecution claim under these circumstances? The Court of Appeal ruled the answer is generally “no.”
Ana Jimenez was an hourly employee of Oheck, LLC. In May 2015, Jimenez brough an individual and class action suit for alleged wage and hour violations. The case eventually settled, with Oheck agreeing to pay Jimenez $50,000, with $15,000 to be paid to Jimenez and the remainder to her attorneys.
Malicious Prosecution Claim
A few months after the trial court dismissed the case, Oheck filed a lawsuit against Jimenez and her counsel for malicious prosecution. Oheck alleged that Jimenez’s lawsuit was without probable cause since she was properly paid all wages and took compliant breaks. Oheck argued that neither the plaintiff nor her counsel had actual knowledge of any other employee who had viable wage and hour claims.
Jimenez and her counsel filed anti-SLAPP motions alleging their conduct was protected under California’s anti-SLAPP (anti-Strategic Lawsuit Against Public Participation) law and that Oheck cannot prevail. The anti-SLAPP statute is designed to prevent lawsuits against individuals who engage in certain privileged and “protected activity” such as filing a lawsuit. The trial court denied the anti-SLAPP motions as it found Oheck had established a basis to assert malicious prosecution. On appeal, however, the Court of Appeal reversed.
Dismissal by Settlement Does Not Support A Malicious Prosecution Claim
Generally, an action for malicious prosecution has three required elements: (1) the defendant (i.e., here the employee Jimenez) brought (or continued to pursue) a claim in the underlying action without objective probable cause, (2) the claim was pursued with subjective malice, and (3) the underlying action was ultimately resolved in the plaintiff’s (i.e., the employer, Oheck’s) favor.
In reversing, the Court of Appeal ruled that Oheck cannot establish the underlying action was resolved in its favor since a dismissal resulting from a settlement does not necessarily reflect on the merits of the action. Rather, “the purpose of a settlement is to avoid a determination on the merits.”
Per the Court, when litigation is terminated by agreement “there is ambiguity with respect to the merits of the proceeding and in general no favorable termination for purposes of pursuing a malicious prosecution action occurs.” The fact the employer agreed to pay a $50,000 settlement meant the employee was partially successful in her action, which prevented the employer from pursuing its malicious prosecution claim.
Employee litigation, such as wage and hour claims, can be difficult and the laws are often one-sided. Employers sometimes choose to settle because it is cheaper in the long run, without the risk of losing at trial. Unfortunately, even meritless cases get settled for this reason.
If an employer wants to later pursue a malicious prosecution claim against the employee, the employer will have to be willing to incur the costs to take the case all the way to trial, win, and then prove in separate litigation that the employee’s lawsuit was both frivolous and without probable cause. With these hurdles, and given the rise of employee claims, it is better if employers focus on ensuring their practices are in compliance and that they document the legitimate business reasons for employee terminations. That way, employers can hopefully reduce the risk of employees filing claims in the first place.
Sue M. Bendavid and Tal Burnovski Yeyni are employment defense lawyers.