Client praises Susan Kumagai and Gary Lafayette in a Daily Journal article regarding a defense verdict in a wrongful termination case:

In the game of labor and employment litigation, it’s not often that the big companies win.

Just ask Tom Maddox, vice president and deputy general counsel for American Stores Corp., one of the largest food and drug retailers in the nation and parent company of Lucky Stores.  Maddox – who heads up the labor and employment legal division of a company with 120,000 employees working in 1,650 stores in 26 states – says on any given day he must contend with approximately 25 employment lawsuits pending against his company in California alone.

As Maddox notes, “Employees win a lot more of these suits than employers.”

In September of last year, one disgruntled California employee piled another such lawsuit on Maddox’s desk. The difference was this employee hadn’t been fired: He’d been demoted.

Two months after this case was filed, the California Supreme Court issued a ruling making it just as easy to file and win a wrongful demotion case as a wrongful termination case.

So Maddox enlisted the help of a San Francisco-based minority-owned law firm, Lafayette, Kumagai and Clarke. Not only did the name partners Gary T. Lafayette and Susan T. Kumagai pull out a big – and rare – defense verdict for Maddox’s company, they scored an early win in what some expect to be an influx of wrongful demotion cases. The case, Orozco v. American Stores Corp. C95-03850, Contra Costa County Superior Court, was brought by a Lucky Stores employee who was demoted from assistant manager to cashier after he sold 10 cases of champagne for a discounted cost of more than $500.

More than a year later the employee sued Lucky Stores, American Stores Corp. and three individually named managers for $350,000 in compensatory damages (plus an untold amount in punitive damages) for alleged race discrimination, violation of the Family Medical Leave Act, intentional infliction of emotional distress and breach of contract based on wrongful demotion.

Maddox credits the Orozco victory to the talents of Lafayette and Kumagai.

“Gary Lafayette did a wonderful job on the lawsuit,” says Maddox, who first met Lafayette at a California Minority Counsel Program function back in 1993. “He was so well prepared and really connected with the jury.”

Making that connection with the jury is one of the biggest obstacles to overcome, according to Lafayette.  ”Just about everybody is an employee and few are employers,” says Lafayette.  ”There’s a tendency to believe the company can absorb a loss better than an individual, and the hard sell is that a company is entitled to a certain level of responsibility and activity from their employees.”

Lafayette says the best way to make that point is to “personify the company as the individuals who make the decisions, and ultimately to get the jury to look at the issues through the eyes of the person forced to make the decision [to fire or demote an employee].”

Lafayette and Kumagai did just that. They convinced the jury that their client shouldn’t be held liable for the decision to demote the plaintiff, winning a defense verdict against all causes of action in the first stage of what was to be a costly three-stage trial.

The victory was all the more remarkable given the November 1995 California Supreme Court ruling in Scott v. Pacific Gas & Elec. Co., 11 Cal.App.4th 454. The court essentially held that a party could bring a wrongful demotion action as if it were a wrongful termination action, making wrongful demotion cases easier to file and win. That change in the law also meant that the Orozco jury had even more authority to review the business judgment of Lucky Stores managers. “What made this case particularly difficult was that the plaintiffs argued, and the court agreed, that the jury could decide which level of demotion was proper,” says Kumagai. … Nevertheless, such decisions are now subject to even more civil litigation thanks to Scott. And that may lead to a whole new class of employment litigation, according to Kumagai.

“I think because demotion probably occurs much more often than terminations, we will be seeing a lot more demotion cases brought against employers,” says Kumagai. “It’s an opening of the floodgates.”

Lafayette sees Scott as adding even more pressure to big companies to settle these types of cases.  ”Most companies have taken a view not to try employment cases and to try and settle them instead,” says Lafayette. “The fear is they won’t be well received in the courtroom.”  Lafayette points out that by granting juries the power to review the propriety of demotion decisions, Scott will only increase big companies’ reluctance to take cases to trial and may result in more settlements.

To safeguard against this predicament, American Stores Corp. has 10 full-time human resource representatives on staff throughout California to assist managers with disciplinary decisions and provide employees with an internal resource for lodging complaints.

“Our view is if our employees feel there is someone they can go to with a complaint who will listen and take action, they are less likely to pursue a lawsuit or an administrative agency charge,” says Maddox.

The disciplinary review process provides another layer of protection against later legal action. The demotion which the Orozco plaintiff asked the jury to review was a decision reached by three levels of management, including a district manager, a regional vice president and even Maddox himself.

“We carefully review the facts before we take any disciplinary action,” says Maddox.

But even these safeguards cannot completely shield a large corporation from incurring substantial legal costs for exercising what it considers to be sound business judgment, says Kumagai.

Excerpted from Reynolds, Joshua.  “You’re Demoted!”  Daily Journal. 17 October 1996: n. pag. Web. 5 April 2009.