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The New Importance of
Workplace Investigations

By D. Jan Duffy, J.D.

Employers have conducted workplace investigations for years on a variety of matters ranging from simple violation of work rules to complicated fraud or legal compliance. As the stakes have risen with higher jury verdicts in sexual harassment, wrongful termination, and other employment litigation, courts have begun to scrutinize these investigations more closely.

The trend accelerated with the California Supreme Court’s decision in Cotran v. Rollins Hudig Hall International, Inc., et al.,, 69 Cal Rptr. 2d 900 (1997). Plaintiff Ralph Cotran, senior vice president of Rollins Hudig Hall, an insurance brokerage firm, was accused by two female subordinates of sexual harassment. After an investigation, the company terminated Cotran, and he sued for wrongful termination in violation of an implied for-cause contract. At trial, the jury was allowed to consider whether or not Cotran had in fact committed sexual harassment. Concluding that he had not, the jury awarded him $1.7 million.

On appeal, the Court of Appeals, 2nd District, reversed, holding that the trial judge erred in allowing the jury to consider, after the fact, whether harassment had occurred. The court indicated that the jury’s proper role was to determine whether, at the time it fired Cotran, the company had a reasonable belief, based on an appropriate investigation, that Cotran had committed harassment.

The California Supreme Court affirmed the Court of Appeal’s decision, making it clear that the appropriate question for the jury is not whether the terminated employee did or did not commit harassment. Rather, it is whether the employer’s decision to terminate was reasonable. That, the Court said, depends upon whether the employer conducted a reasonable (not just good faith) investigation. Although the court expressly declined to dictate the specific and finite elements of a “reasonable” investigation, both the majority and concurring opinions considered at some length the importance and nature of an effective and appropriate workplace investigation. It also invited lower courts to explain and expand upon the notion of what, exactly, constitutes a reasonable investigation.

The California Supreme Court’s decision will undoubtedly have ramifications well beyond wrongful termination cases in California. Other state and federal courts had already begun to scrutinize workplace investigations. Although this was particularly so in sexual harassment cases, where the duty to take prompt corrective action implied a duty to investigate, both duties had already been transferred to and imposed upon a number of other types of discrimination and employment cases. Litigation involving age and disability, glass ceiling issues, sex or race, and other selection/promotion litigation, as well as wrongful termination cases, all frequently implicate managerial decision-making. Accordingly, the case outcomes depend to some measure on reasonable and appropriate fact-finding or “investigation” by the employer.

Copyright © 1998 D. Jan Duffy. All rights reserved.
Reprinting or other publication without prior written permission prohibited.