- Author: Peter J. Gimino III
- Date:
- Category: Business Law , Employment Law , Labor Law , Law
An Employee Is Not On His Or Her Own To Defend Third Party Suits Arising From The Employee’s Discharge Of His Or Her Corporate Duties
A corporation must necessarily act through its personnel in conducting business operations. For example, a corporate employee may enter into contractual arrangements with third parties as part of the normal course of business. Although the employee is not entering those contracts “personally” but instead as part of the discharge of his or her duties, it is not uncommon for officers to find themselves personally named in litigation when a dispute arises. When that occurs, the employer has an obligation to indemnify its employees. Specifically, pursuant to California Labor Code Section 2802(a), “[a]n employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.”
The indemnification obligation pursuant to California Labor Code Section 2802 includes the obligation to reimburse defense costs, settlement or judgment, and attorney’s fees incurred in enforcing the indemnification rights under that section.
Pursuant to California Corporations Code Section 317, a corporate employer has the statutory authority to indemnify its officers for amounts incurred in connection with proceedings arising out of the officer’s good faith conduct taken in a manner reasonably believed to be in the best interest of the corporation. Further, indemnification is mandatory pursuant to California Corporations Code Section 317 where the officer is successful on the merits in the defense of any such proceeding.
Numerous exceptions and conditions exist with respect to these provisions and we invite you to contact The Gimino Law Office if you are an employee facing a third party claim or corporate management addressing claims made against corporate employees individually.
