In a case which should come as a relief to employers everywhere, a court has finally weighed in on just how far purported settlement discussions can go before going too far. A California appeals court recently ruled that an employee’s threatened legal action against his former employer constituted extortion.

In Stenehjem v. Sareen, the plaintiff claimed he was wrongfully terminated and defamed by his former employer, seeking $382,000 in lost wages and a total of $2 million in overall damages. Stenejhem’s attorney attempted to negotiate a settlement, but the company refused. After firing his attorney, Stenehjem emailed the company’s counsel threatening to file a false criminal complaint against the company under the False Claims Act, stating that it engaged in fraudulent billing practices, unless the defendants paid him. 

The Appeals Court found that the email constituted extortion as a matter of law, particularly because the email had no connection to plaintiff’s original claims of wrongful termination or defamation. In reaching their decision, the Appeals Court held that the veracity of the FCA allegations is irrelevant to the question of whether the email constituted extortion. “Even were it true that Sareen had in fact committed acts violating the False Claims Act – and there is no evidence to support this, since Stenehjem filed no declarations in connection with the motion other than his attorney’s fee declaration – this is irrelevant to whether the threatened disclosure was extortion.”

As in many states, California’s Anti-SLAPP (Strategic Lawsuits Against Public Participation) law guards free speech in the litigation process, which extends to pre-litigation settlement negotiations and other communications. The pivotal component of any Anti-SLAPP case is whether or not the speech in question addresses protected activities. The Appeals Court reasoned that the Anti-SLAPP protections did not extend to Stenejhem’s email, which went far beyond mere pre-litigation procedures and a request for a face-to-face meeting, despite Stenejhem’s claims to the contrary.

This pro-employer decision is a small respite from the otherwise increasingly pro-employee legal landscape. When confronted with a disgruntled employee, it is always best to consult counsel immediately.