Recent Developments from Around the States

A group of physicians left Team Physicians to form a competing business, North Valley Emergency Specialists, which solicited Team Physicians customers. Team Physicians sued the former employees and North Valley for breach of contract and tortious interference with contractual relations with customers. The superior court ruled that the noncompetition provision was unenforceable but granted Team Physicians' motion to compel arbitration of the nonsolicitation claims pursuant to employment agreements between Team Physicians and each of the doctors that contained noncompetition, nonsolicitation and arbitration provisions. The superior court granted the order, but the state Supreme Court reversed.

The Arizona Arbitration Act, the court noted, requires that valid arbitration agreements be enforced. However, the Act provides that it has “no application to arbitration agreements between employers and employees or their respective representatives” (Ariz. Rev. Stat. ' 12-1517). Team Physicians contended on appeal, however, that the Federal Arbitration Act (FAA) preempts the Arizona law and argued that the U.S. Supreme Court's holding in Circuit City Stores Inc. v. Adams, 532 U.S. 105 (2001) — namely, that the FAA covers arbitration agreements covering employment-related disputes — directed the result in the instant case. The Court found that Team Physicians had failed to raise that argument in the lower court and that, in any event, the lower court had not made a finding as to whether the employment contracts as issue implicated interstate commerce, a requirement for coverage under the FAA. “Although we agree that Arizona has a strong public policy favoring arbitration, the plain language of … [Section] 12-1517 carves out an exception to that policy,” the court wrote, “[a] straightforward reading of the statute reveals that [Section] 12-1517 specifically exempts employer-employee arbitration agreements from compulsory arbitration under the Act.”

CALIFORNIA

No Public Policy Tort Against California Private Employers

A California appeals court has held that an employee fired for allegedly using company e-mail in the service of a pyramid scheme has no First Amendment claim against her former employer because California does not recognize a free speech public policy tort. Grinzi v. San Diego Hospice Corp., 2004 Cal. App. LEXIS 1039 (Cal. Ct. App. Jun. 30).

Joan Grinzi worked for San Diego Hospice Corp. for over a decade. She had a superior record of work performance and received commensurate pay raises. In 2002, however, Grinzi was terminated when her employer discovered that she was using the company's e-mail system to participate in an investment group that Hospice believed was a pyramid scheme. (The investment group was then under investigation by state officials.) Grinzi sued, inter alia, for wrongful termination in violation of public policy, alleging that she engaged in speech protected by the First Amendment when she wrote the e-mails in question. The trial court dismissed all her claims.

The California appeals court affirmed the decision of the lower court. Under California law, the court explained, an employee may have a claim against a former employer for termination in violation of public policy only if the public policy is widely known, such that the employer is on notice that termination on the basis of participation in activity supported by the policy is impermissible. Because the First Amendment applies only to state actors, however, a private employer has no reason to believe it is violating any public policy when it fires an employee for speech-related reasons. “[T]he First Amendment does not sufficiently describe the type of conduct alleged here, a private employer terminating an employee for the exercise of free speech, to enable the employer to know the fundamental public policies expressed by the First Amendment prohibited such a termination,” the court concluded.

WASHINGTON

Former Government Employee May Sue for Invasion of Privacy

A former employee of a government agency may sue his former employer for defamation and invasion of privacy based on public disclosures made by the agency, the Washington Court of Appeals has ruled. White v. Woodinville Water Dist., 2004 Wash. App. LEXIS 1285 (Wash. Jun. 28, 2004).

Bill White started working as the finance director of a Washington state water district in 1992 and always performed well. Later, White commenced an extramarital relationship, which he made public in 1999. In connection with an unrelated investigation of allegations of racial harassment in 2000, White was asked allegedly “accusatory” questions by a lawyer retained by the water district, and resigned over the perceived offense. He subsequently interviewed with, and received a job offer from, CompuCare, a private company. Later, the attorney issued a report on the claims of racial harassment. That report also contained information other than findings about harassment, including a statement that White had an extramarital relationship. The water district board was sharply critical of White for that reason, and recorded its criticism in its minutes, as follows: “White conducted personal and outside professional and business activities on district time; White requested that an employee in the finance department cover up for him when he was conducting unauthorized activities on district time; and White's actions and attitudes created a perception of intimidation and retaliation among employees in the finance department.” CompuCare learned of the contents of the minutes and withdrew its job offer. Although it later reconsidered the rescission and hired White, it offered him a reduced salary. White filed a lawsuit against the water district alleging defamation, invasion of privacy, and claims of false light. The water district responded, claiming its statements were truthful. The lower court granted the water district's request for summary judgment.

The Washington Court of Appeals reversed the lower court, rejecting the water district's contention that the board's statements could not be defamatory because they were true. The Court held that “a reasonable jury could conclude that the Board and Bandarra [the water board's general manager] should have known that the … report and employee declarations contained false or defamatory statements,” the court said.

ARIZONA

Arizona Arbitration Act Does Not Applicable to Employment Agreements

Regardless of whether an arbitration agreement is individual in nature or collectively bargained, the Arizona Arbitration Act does not apply to any arbitration agreements between employers and employees, a unanimous Arizona Supreme Court has ruled on an issue of first impression. North Valley Emergency Specialists LLC v. Santana, 2004 Ariz. LEXIS 87 (Ariz. Jul. 14).

A group of physicians left Team Physicians to form a competing business, North Valley Emergency Specialists, which solicited Team Physicians customers. Team Physicians sued the former employees and North Valley for breach of contract and tortious interference with contractual relations with customers. The superior court ruled that the noncompetition provision was unenforceable but granted Team Physicians' motion to compel arbitration of the nonsolicitation claims pursuant to employment agreements between Team Physicians and each of the doctors that contained noncompetition, nonsolicitation and arbitration provisions. The superior court granted the order, but the state Supreme Court reversed.

The Arizona Arbitration Act, the court noted, requires that valid arbitration agreements be enforced. However, the Act provides that it has “no application to arbitration agreements between employers and employees or their respective representatives” (Ariz. Rev. Stat. ' 12-1517). Team Physicians contended on appeal, however, that the Federal Arbitration Act (FAA) preempts the Arizona law and argued that the U.S. Supreme Court's holding in Circuit City Stores Inc. v. Adams , 532 U.S. 105 (2001) — namely, that the FAA covers arbitration agreements covering employment-related disputes — directed the result in the instant case. The Court found that Team Physicians had failed to raise that argument in the lower court and that, in any event, the lower court had not made a finding as to whether the employment contracts as issue implicated interstate commerce, a requirement for coverage under the FAA. “Although we agree that Arizona has a strong public policy favoring arbitration, the plain language of … [Section] 12-1517 carves out an exception to that policy,” the court wrote, “[a] straightforward reading of the statute reveals that [Section] 12-1517 specifically exempts employer-employee arbitration agreements from compulsory arbitration under the Act.”

CALIFORNIA

No Public Policy Tort Against California Private Employers

A California appeals court has held that an employee fired for allegedly using company e-mail in the service of a pyramid scheme has no First Amendment claim against her former employer because California does not recognize a free speech public policy tort. Grinzi v. San Diego Hospice Corp., 2004 Cal. App. LEXIS 1039 (Cal. Ct. App. Jun. 30).

Joan Grinzi worked for San Diego Hospice Corp. for over a decade. She had a superior record of work performance and received commensurate pay raises. In 2002, however, Grinzi was terminated when her employer discovered that she was using the company's e-mail system to participate in an investment group that Hospice believed was a pyramid scheme. (The investment group was then under investigation by state officials.) Grinzi sued, inter alia, for wrongful termination in violation of public policy, alleging that she engaged in speech protected by the First Amendment when she wrote the e-mails in question. The trial court dismissed all her claims.

The California appeals court affirmed the decision of the lower court. Under California law, the court explained, an employee may have a claim against a former employer for termination in violation of public policy only if the public policy is widely known, such that the employer is on notice that termination on the basis of participation in activity supported by the policy is impermissible. Because the First Amendment applies only to state actors, however, a private employer has no reason to believe it is violating any public policy when it fires an employee for speech-related reasons. “[T]he First Amendment does not sufficiently describe the type of conduct alleged here, a private employer terminating an employee for the exercise of free speech, to enable the employer to know the fundamental public policies expressed by the First Amendment prohibited such a termination,” the court concluded.

WASHINGTON

Former Government Employee May Sue for Invasion of Privacy

A former employee of a government agency may sue his former employer for defamation and invasion of privacy based on public disclosures made by the agency, the Washington Court of Appeals has ruled. White v. Woodinville Water Dist., 2004 Wash. App. LEXIS 1285 (Wash. Jun. 28, 2004).

Bill White started working as the finance director of a Washington state water district in 1992 and always performed well. Later, White commenced an extramarital relationship, which he made public in 1999. In connection with an unrelated investigation of allegations of racial harassment in 2000, White was asked allegedly “accusatory” questions by a lawyer retained by the water district, and resigned over the perceived offense. He subsequently interviewed with, and received a job offer from, CompuCare, a private company. Later, the attorney issued a report on the claims of racial harassment. That report also contained information other than findings about harassment, including a statement that White had an extramarital relationship. The water district board was sharply critical of White for that reason, and recorded its criticism in its minutes, as follows: “White conducted personal and outside professional and business activities on district time; White requested that an employee in the finance department cover up for him when he was conducting unauthorized activities on district time; and White's actions and attitudes created a perception of intimidation and retaliation among employees in the finance department.” CompuCare learned of the contents of the minutes and withdrew its job offer. Although it later reconsidered the rescission and hired White, it offered him a reduced salary. White filed a lawsuit against the water district alleging defamation, invasion of privacy, and claims of false light. The water district responded, claiming its statements were truthful. The lower court granted the water district's request for summary judgment.

The Washington Court of Appeals reversed the lower court, rejecting the water district's contention that the board's statements could not be defamatory because they were true. The Court held that “a reasonable jury could conclude that the Board and Bandarra [the water board's general manager] should have known that the … report and employee declarations contained false or defamatory statements,” the court said.