You Be the Judge

Employee Loans

Your company has loaned an employee $2,000 for personal use. When he was laid off, the company deducted the balance due ($1,000) on the loan from his final paycheck.


This is not legal. Under California law, an employee must be paid all wages final wages "without abatement or reduction." By illegally deducting the loan balance from the final pay, at a minimum the employer will be exposed to Department of Labor Waiting Time Penalties of up to 6 weeks wages.

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The Office Romeo

The Situation: The Plaintiff, a supervisor, was accused of sexual harassment by having sex with female subordinates.  The employer conducted extensive interviews of the accusers and other witnesses and concluded that the women subordinates had, in fact, been sexually harassed.  The employer then fired the supervisor.

The supervisor subsequently sued the employer for wrongful termination on the grounds  that the sexual relations with the subordinates were consensual and therefore did not constitute sexual harassment.  At the trial, the supervisor proved that the women had conspired against him by claiming sexual harassment in retaliation for his “two timing” them. 

Because the supervisor had not committed sexual harassment, the jury concluded that he was wrongfully terminated and awarded him $1.78 million in damages. The employer appealed.

Result: The California Supreme Court held that the employer was NOT liable to the supervisor because the company had used “good faith” in reaching its decision to terminate.  Here, the employer had conducted an extensive investigation into the allegations and had well-articulated reasons for reaching its conclusion that harassment had occurred.

 Lessons learned: There are several:

  1. Non-Fraternization Policy: This lawsuit probably would not have been filed if the employer had had a Non-Fraternization Policy in its Employee Handbook requiring that supervisors refrain from socializing with subordinates and/or that both parties inform management if they became involved in an intimate relationship.
  2. Investigate: Once an allegation of harassment is made, the employer MUST thoroughly investigate by interviewing witnesses and fairly evaluate the evidence.  Because the employer did so, it escaped liability to the supervisor.
  3. Handbook: Even though the employer prevailed, the costs of litigation, trial, and appeal were undoubtedly in the $100,000’s—and are NOT recoverable from the supervisor.  This case is a study in how a well-considered Employee Handbook can protect an employer against litigation.  Updating and expanding an Employee Handbook can literally save an employer hundreds of thousands of dollars.

Case cited: Cotran v. Rollins Hudig Hall International (1998)