Would you break the law for money

Management blog


An unjustified termination of an employee costs the US insurer Allstate millions - as a punishment. An example.Guest contribution by Mike Weitzel, insurance lawyer from the law firm Friedrich Graf von Westphalen.



Mike Weitzel from the law firm Friedrich Graf von Westphalen & Partner (Photo: Press)



Some companies have their very own strategy when they want to get rid of a manager, an executive or another employee: especially when they know that there is actually no legal recourse against the person concerned and they have no reason to resign. Then they disregard the law without further ado and terminate the person without notice. Then - often to the surprise of the person concerned - ask for a cell phone, laptop and ID card straight away and have them escorted out to the courtyard gate.

Is that in order? No. Because by doing so they would - even quite deliberately - commit violations of the law. Because economically it can still be a good alternative for you at the end of the day: A severance payment is made and the issue is settled. Especially since the person concerned becomes ready to negotiate very quickly if he doesn’t have any more salary on his account from now on, it gets lonely without the office colleagues and those affected start to break away from the company.


Such a procedure is not in order; this is where the German civil legal system is clearly reaching its limits. One solution could be very high fines, millions of dollars such as are common in the American legal system as punitive damages. So that it doesn't pay off to break the law instead of observing it.


As in the Allstate case: The unjustified termination, for which the US insurer was asked to pay as a penalty of 18 million euros - and which might also be a healing shock for German companies

A jury from the San Diego Superior Court recently awarded an employee of the US insurer Allstate more than $ 18 million in damages. Because his employer wrongly fired him. The jury decided that the insurer had to pay compensation to the employee because of a termination that was ultimately wrongly pronounced. In addition to the actual damage of 2.6 million US dollars, Allstate had to pay a fabulous 16 million US dollars as so-called punitive damages. That means: The sum is intentionally set so high that it really hurts the company - and at the same time warns other companies to discourage them from not doing the same. In short: the sum has a punitive character and should not only be a compensation for the actual damage.


Millions fine: Out of proportion - or appropriate

From a German point of view, this huge sum of over 18 million US dollars seems completely out of proportion. In the USA, on the other hand, it is still considered appropriate.

What happened? Allstate fired its employee around nine months after he was arrested after a violent argument with his ex-girlfriend. The woman called the police after he locked him out of her home and he hit the door hard. The police came and arrested the man on charges of domestic violence and possession of marijuana paraphernalia.

The first charges against him were dismissed in January 2015. Another domestic violence charge was dismissed six months later after the man had taken an anti-aggression course.
His employer, Allstate, learned of the incident because the employee's ex-girlfriend had emailed him at his company address asking about the criminal case. Allstate then initiated an internal investigation with the result that there was no need for action for him as an employer because of the arrest and the attendance of the anti-aggression course.

That all changed when the ex-girlfriend reached out to Allstate bosses accusing her ex-boyfriend of threatening her as well during the Arizona incident. Thereupon the employee fired on the grounds that he had violated company guidelines by displaying "threatening behavior". According to these guidelines, the immediate dismissal of employees is allowed if they are involved in unauthorized acts such as coercion or bodily harm, it said.


No notice of termination is allowed without conviction

But the jury of the San Diego Superior Court saw things differently: After all criminal charges against the employee had been finally dismissed, there was no longer any reason to fire the employee. According to the jury, the termination violates California's state labor law. According to this, employers are not allowed to dismiss anyone for criminal offenses or possible criminal offenses if the person in question was not convicted for precisely that reason.


No new job because of the unjustified termination

The jury's point of view is understandable. Once again, however, the damages awarded are memorable. What aggravated the penalty: That all efforts of the plaintiff to find a new job failed - because the potential new employers had learned of the unjustified reasons for dismissal.


Compensation of a punitive nature - and as a deterrent

Decisions from the USA to local conditions are not easily transferable. This applies in particular to the phenomenon of so-called punitive damages, punitive damages or exemplary damages.
Because in the USA there is no such thing as a strict separation between criminal and civil proceedings. Punitive damages are compensation with a punitive nature, far higher than the actual damage.

The point is
- to punish the perpetrator for his behavior,
- stop him from behaving like that again and
- To prevent others from doing this.


Mere negligence does not lead to punitive damages anyway

Punitive damages should only be imposed for grossly culpable behavior. The prerequisite for this is always that the harmful behavior is particularly reprehensible. In cases of mere negligence, for example, there is no compensation for punitive damages.

US law determines: The punitive damages should be in reasonable proportion to the actual damage. The US Supreme Court ruled that a ratio of 500: 1 was no longer appropriate, while a ratio of 9: 1 is generally still okay (BMW of North America ./. Gore, 517 US 559 ( 1996)).


The Allstate verdict was quite reasonable

Judging by this, the judgment of the San Diego Supreme Court of over 18 million US dollars is quite in the frame. Because the ratio used by the jury was only 6: 1.

But the matter is not quite over yet: The attorneys of Allstate have announced that they will take action against the decision of the San Diego Superior Court.



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Category: General | Tags: Allstate, Labor Law, Friedrich Graf von Westphalen & Partner, Guest Commentary, Mike Weitzel, Punitive Damages, Unjustified Termination