Defense and Indemnity of Employees in Employment Lawsuits

A California Company is generally vicariously liable for harassment committed by its supervisory employees and perhaps for its non-supervisory employees. In some instances, for example, where the allegations were purportedly committed by a supervisor, liability will be strictly imposed regardless of the employer’s participation in or knowledge of the harassment. Retaining one attorney to represent the corporation and the employee is the simplest method of defending a sexual harassment claim. However, this method should generally be used only when an investigation discloses that the employee did not commit the harassment.Otherwise, a conflict of interest between the employee and the employer will exist, especially if indemnity is not provided.

While some conflicts can be waived, the Company should be careful in requesting a waiver from the employee because of the risk that the employee may later contend that he did not receive an adequate defense as a result of the attorney’s efforts to defend the Company. There may also be strategic reasons to avoid using the same attorney, e.g., to avoid the suggestion that the Company condones the alleged activity or that the Company will pay any judgment.

If, however, a joint defense is provided, it should be pursuant to a written agreement in which the ground rules are identified, e.g., waiver of possible conflicts, no cross-claims, and sharing of information. The use of a single attorney should also be monitored carefully throughout the litigation for changes in circumstances.  If the employee is to retain separate counsel, the Company may suggest possibilities but it should leave the choice to the employee so as to avoid any suggestion that the Company is controlling the defense. The cost of a defense is often prohibitive for the individual; homeowners and Directors & Officers’ insurance policies do not usually cover the cost of defending these suits. For this reason, employees usually seek reimbursement or advancement of their defense expenses from their employer. However, if there is a finding of harassment, the employee generally must repay the defense costs advanced on his behalf. The Company would also generally be barred from indemnifying the employee for his liability because it is hard to conceive of many situations when harassment would be considered to be in the best interests of the Company or to have been committed in good faith.