Recently, a California Court of Appeal concluded that a threat to terminate employment may constitute extortion and an employer's alleged extortion may support claims for violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and conspiracy to violate RICO.
In Galeotti v. International Union of Operating Engineers Union Local # 3, the plaintiff worked as a Business Agent for the defendant, International Union of Operating Engineers Union Local # 3 (“the Union”). The individual defendants were union leaders who the plaintiff alleged required union employees to pay money to fund their reelection campaign while actually using the money to enrich them personally. According to the plaintiff, union employees understood that payment was required in order to keep their jobs, notwithstanding the defendants' labeling of the payment as a “donation.” In 2018, the individual defendants requested that the plaintiff “donate” $1,000 to their reelection campaign. According to the plaintiff, the Union terminated his employment when he was able to pay only $500.
The plaintiff filed an initial complaint against the Union and three individual union leaders, alleging wrongful termination in violation of public policy and interference with prospective economic advantage. After the defendants filed a demurrer to the initial complaint, the plaintiff filed a first amended complaint again alleging wrong termination and interference with prospective economic advantage but also adding claims for violation of RICO and conspiracy to violate RICO.
The defendants filed a demurrer to the first amended complaint. In the second amended complaint, the plaintiff omitted the claim for interference with prospective economic advantage but retained the allegations of wrongful termination, violation of RICO, and conspiracy to violate RICO. Specifically, the plaintiff alleged that the requirement that union employees pay money to enrich the individual defendants under the threat of losing their jobs constituted a taking of the employees' money in violation of sections 221 and 224 of the Labor Code, extortion in violation of section 518 of the California Penal Code, and theft by deceit in violation of section 484 of the California Penal Code. The plaintiff attached a flyer to the second amended complaint allegedly prepared by the individual defendants which requested a voluntary donation from union employees in support of their reelection.
The court sustained the defendants' demurrer and dismissed the second amended complaint with prejudice and without leave to amend. The plaintiff appealed dismissal of the second amended complaint, as well as dismissal of the claim for interference with prospective economic advantage in the first amended complaint.
Court of Appeal's Decision
On appeal, the court first considered whether the second amended complaint alleged sufficient facts showing that the plaintiff's termination violated a fundamental policy protected by statute. The court found that the second amended complaint stated a cause of action for wrongful termination in violation of public policy based on sections 518 and 484 of the California Penal Code but not based on sections 221 and 224 of the California Labor Code.
Wrongful Termination Based on Section 518 of the California Penal Code
Section 518 of the California Penal Code defines extortion, in part, as “the obtaining of property or other consideration from another, . . . induced by a wrongful use of force or fear . . .”. Under Section 519 of the Penal Code, “fear” for purposes of extortion “may be induced by a threat . . . to do an unlawful injury to the person or property of the individual threatened or of a third person.”
The plaintiff alleged that defendants wrongfully used fear in the form of threatening to termination his employment. The court first considered whether the plaintiff sufficiently alleged a threat by the defendants. The court found that the plaintiff did not specifically allege who threatened him, when the threat occurred, or by what means. Instead, the second amended complaint broadly alleged that the defendants demanded payment and that union employees understood they would be terminated for nonpayment. The court further found that the flyer attached to the second amended complaint contradicted the plaintiff's allegations by merely “requesting” support and labeling the payment as a “donation.” To survive a demurrer, however, allegations must be construed broadly in favor of the plaintiff. Because the allegations could support an inference that the defendants threatened the plaintiff with termination for nonpayment, the court concluded that the plaintiff sufficiently alleged a threat by the defendants.
The court then considered whether the defendants' alleged threat to terminate his employment was an injury to the plaintiff's property. While Section 519 of the Penal Code does not define property, the court found that courts have broadly interpreted the term to effectuate the purpose of the extortion statute.
The court rejected the defendants' argument that an at-will employee has no property right to continued employment. Based on prior decisions broadly interpreting “property,” the court reasoned that threatening to terminate someone could be an unlawful means of extortion. The court also rejected the defendants' argument that threatening to do something that they have a legal right to do—terminate an at-will employee without cause—cannot be a threat to commit an unlawful injury. The court reasoned that the defendants failed to demonstrate that they had a legal right to threaten to terminate the plaintiff for nonpayment of money the plaintiff did not owe. According to the court, “extortion may be based on threats that are not unlawful themselves but become unlawful when coupled with a demand for money.” In other words, while it may have been lawful for the defendants to threaten an at-will employee with loss of employment, it was unlawful to use the threat of loss of employment to induce the plaintiff to pay money to the defendants.
Wrongful Termination Based on Section 484 of the California Penal Code
Under Penal Code section 484, subdivision (a), a person is guilty of theft for “knowingly and designedly, by any false or fraudulent representation or pretense, defraud[ing] any other person of money . . . “. The court considered whether terminating the plaintiff's employment was contrary to the policy behind section 484 to protect the public from people who make false statements to obtain money from others. The court found that the allegation that the Union terminated the plaintiff's employment for nonpayment of money that secretly went to enrich the individual defendants personally, rather than to support their reelection campaign, stated a cause of action for wrongful termination in violation of public policy.
Wrongful Termination Based on Sections 221 and 224 of the California Labor Code
The court concluded that the second amended complaint failed to state a cause of action for wrongful termination in violation of public policy based on sections 221 and 224 of the Labor Code. Section 221 prohibits employers from obtaining any portion of the wages paid to an employee. Section 224 prohibits deductions from an employee's wages without an employee's written authorization. The court found that the plaintiff did not allege that the Union obtained any of his wages. Instead, the second amended complaint alleged that the plaintiff paid money to the individual defendants for their personal use. Because the plaintiff neither made a payment to the Union nor had wages deducted by the Union, the plaintiff's allegation that the Union terminated him for failing to pay the full amount requested by the individual defendants was not inconsistent with the public policy behind sections 221 and 224.
Section 1962, subdivision (b), of RICO provides that it is unlawful for a person “to acquire or maintain, directly or indirectly, any interest in or control of any enterprise” through a pattern of racketeering activity, which includes any act or threat involving extortion under state law. To state a cause of action under RICO, a plaintiff must allege a pattern of racketeering based on at least two predicate acts. To support a claim of conspiracy to violate RICO, a plaintiff must allege that the defendants intended to further a scheme that, if successful, would satisfy the elements of a civil RICO claim.
The court found that the plaintiff's allegations of extortion in the second amended complaint were sufficient to support his RICO claims. In support of extortion, the plaintiff alleged that the defendants threatened to terminate his employment unless he paid $1,000 to the individual defendants in support of their reelection campaign. The plaintiff further alleged that the Union terminated his employment after he was only able to pay $500. Because the defendants obtained $500 from the plaintiff, the court found their attempted extortion succeeded. The court further found that the allegations in the second amended complaint raised an inference that other employees had also paid money to the individual defendants. Thus, the plaintiff sufficiently alleged two predicate acts of extortion.
Interference with Prospective Economic Advantage
In the first amended complaint, the plaintiff alleged that the individual defendants induced the Union to terminate the plaintiff after he failed to pay the full amount they requested. Thus, according to the plaintiff, the individual defendants interfered with his prospective economic advantage of being employed by the Union.
The court rejected the plaintiff's argument that the allegations in the first amended complaint fell within an exception to the rule that agents or employees of a corporation cannot be liable for inducing a breach of the corporation's contract—a manager or agent may be liable when acting to further the manager or agent's own economic advantage at the employer's expense. The plaintiff argued that the individual defendants personally benefitted from his termination because other employees would be more likely to pay them money to avoid a similar fate. The court found, however, that the first amended complaint made no such allegation, nor were there any allegations that the individual defendants caused the Union to terminate the plaintiff's employment so they would receive the benefits of the plaintiff's job or that they acted for their own economic benefit at the expense of the Union. Thus, the cause of action for interference with prospective economic advantage in the first amended complaint was properly dismissed.
Significance of the Court's Decision
Historically, a plaintiff who files a claim for wrongful termination based on a violation of public policy faces an uphill battle, even under California's employee-friendly standards. While the court's decision provides some clarity as to what type of public policy violations will support a wrongful termination claim, it remains to be seen whether the plaintiff will be victorious.