An employee who repeatedly falsified his employment status to obtain employment, as his employer learned only after he was laid off a second time and filed suit, was not barred by the doctrines of “after-acquired evidence” or “unclean hands” from asserting claims for alleged disability discrimination against his employer under California law, the California Supreme Court has ruled. Salas v. Sierra Chemical Co., No. S196568 (Cal. June 26, 2014). 

However, the Court held the employee’s right to lost compensation was limited to the period preceding the employer’s discovery of the misconduct. Reversing summary judgment in favor of the employer, the Court further ruled that federal immigration law did not preempt California law extending employee protections and remedies “regardless of immigration status,” except to the extent it authorized damages for any period after the employer’s discovery of an employee’s ineligibility to work in the United States.

Background

Vicente Salas applied for a job with Sierra Chemical Co., a swimming pool chemical manufacturer, as a seasonal production worker in April 2003. Salas provided a false Social Security number and a resident alien card and falsified the federal Immigration and Naturalization Form I-9 and IRS Form W-4 with the same information. The company did not know of these falsifications. Salas worked for Sierra on a seasonal basis in 2003, 2004 and 2005 and provided the same documentation regarding his eligibility to work each year.

During that period, Salas sustained two work-related injuries to his back, for which he filed workers’ compensation claims. He returned to work on modified duty after the second injury until he was laid off again in December 2006. Thereafter, Salas obtained employment with another company. In May 2007, Sierra contacted Salas and offered him another seasonal position, pending his obtaining a release from his physician to return to work. Sierra offered to hold the position open for Salas until he obtained the release. However, Salas never provided the release or contacted Sierra.

In August 2007, Salas sued Sierra for alleged disability discrimination under the California Fair Employment and Housing Act (“FEHA”). As the parties prepared for trial, Salas revealed he was not authorized to work in the United States and had repeatedly provided false documentation supporting his eligibility for employment. Sierra then filed a motion for summary judgment, arguing Salas was barred from asserting his claim under the doctrines of after-acquired evidence and unclean hands based on his falsification of his employment eligibility, and the company would not have hired him had it known of this misrepresentation. The trial court granted Sierra’s motion, and the Court of Appeal affirmed.

Applicable Law

The doctrine of after-acquired evidence refers to an employer’s discovery, after an allegedly wrongful termination or refusal to hire, of information that would have justified a lawful termination or refusal to hire. The U.S. Supreme Court ruled in McKennon v. Nashville Banner Publishing Co., 513 U.S. 352 (1995), that after-acquired evidence does not bar all relief under the Age Discrimination in Employment Act, although such evidence can limit an employee’s damages and other remedies. Generally, reinstatement is unavailable; however, back pay may be available from the date of the unlawful discharge through the date the wrongdoing is discovered.

Similarly, the doctrine of unclean hands applies when an employee has acted unconscionably, in bad faith, or inequitably in the matter in which he or she seeks relief. The misconduct must relate to the employee’s claims and, if proven, it may be a complete defense to the claim.

The Immigration Reform and Control Act of 1986 (“IRCA”) requires employers to verify that prospective employees are eligible to work in the United States and compels employers to immediately discharge any unauthorized alien worker upon discovery of the worker’s unauthorized status. Employers are subject to significant civil and criminal penalties for violations. IRCA does not explicitly preempt all state laws related to immigration; however, preemption may arise when “the state law conflicts with federal law, either because compliance with both laws is impossible or because the state law is an obstacle to accomplishing congressional objectives.”

California extended the protections of state labor, employment and civil rights laws to all workers “regardless of immigration status” who are employed in California, with Senate Bill No. 1818.

After-Acquired Evidence, Unclean Hands No Bar to Claims

Addressing the doctrine of after-acquired evidence, the California Supreme Court adopted the U.S. Supreme Court’s reasoning in McKennon. It ruled the after-acquired evidence doctrine did not bar liability for the employee’s claim, but limited an employee’s damages, precluding back pay for the period after the employer’s discovery of the employee’s misconduct, and reinstatement or promotion. However, the Court permitted the recovery of back pay for the period from the termination through the date on which the employer discovered the employee’s misconduct. The Court left it to California’s trial courts to fashion “remedies based on the relative equities of the parties.”

Likewise, the Court rejected the argument that the doctrine of unclean hands served as a complete bar to liability in FEHA actions. Rather, the Court stated that “equitable considerations” should guide trial courts in fashioning relief.

Federal Law Not Complete Bar to State Protections of Unauthorized Workers

The Court concluded IRCA largely did not preempt Senate Bill No. 1818. The Court examined two periods of time: (1) the period after which the employer discovers the employee’s unauthorized status and (2) the period preceding that discovery. With respect to the post-discovery period, the Court found any state law authorizing damages for loss of employment would conflict directly with IRCA because an employer is prohibited from employing unauthorized workers. On the other hand, the Court found that permitting damages for loss of employment for the pre-discovery period did not conflict with IRCA. Accordingly, the Court concluded that, to the extent Senate Bill No. 1818 made available to such workers the remedy of pre-discovery period lost wages for unlawful termination in violation of the FEHA, it was not preempted by IRCA.

On this issue, Justice Marvin Baxter issued a concurring and dissenting opinion in which Justice Ming W. Chin joined. Justice Baxter disagreed with the majority’s preemption analysis and posited that federal law would preempt “a state law rule that allows any recovery of post-termination lost wages by an employment-ineligible alien who sought or procured the job by submitting fraudulent eligibility documents.”

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This case adds new complexity to damages assessments in discrimination cases under the FEHA. The Court’s broad ruling on the after-acquired evidence and unclean hands doctrines applies to situations beyond employee falsification of documents. As this case raises policy concerns regarding preemption under federal immigration law, it is possible U.S. Supreme Court review may be sought.