Are You Accused of Having “Unclean Hands?”

The “unclean hands” defense and its evil twin sister, the “after-acquired evidence” doctrine, are used by many employers facing a lawsuit as an excuse to dredge up anything they can find on the employee suing them. Before filing a lawsuit against your employer or former employer, you need to anticipate that they will do this, and be prepared. If you have too many skeletons in your own closet, you may want to think twice about bringing a suit in the first place. This does not mean, however, that employers’ attempts to soil the employee suing them always succeed – in fact, there are many ways that these attempts fail, as a matter of law.

Basically, the “unclean hands” defense is based on an equitable principle that a defendant should not have to pay someone accusing the defendant of wrongdoing when the plaintiff himself or herself is just as guilty of the bad practice that is the subject of the suit. The “after-acquired evidence” doctrine gained strength after the United State Supreme Court’s decision in McKennon v. Nashville Banner Publishing Co. (1995) 513 U.S. 352, which has been applied to hold that for someone suing based on violation of an important statute, like the anti-discrimination laws, he or she cannot have the entire suit eliminated based upon “unclean hands” – because of the public policy promoted by the statute itself. In other words, a discriminator should not get off the hook just because the discrimination victim had some problems, too – because our society has determined that discrimination is wrong. However, if the employer or ex-employer finds viable “after-acquired evidence,” the relief that the discrimination victim himself or herself might receive can be limited in some cases – i.e., if the employer can show that the employee would have been terminated anyhow for something the employer has learned after the suit was filed (a common example is proven fraud in your employment application), then the employee may not have a right to get his/her job back, or get back pay after the date on which the after-acquired evidence was discovered.

Here are some arguments you should raise if you are confronted with the “unclean hands” defense or “after-acquired evidence" doctrine:

In California, under the Fair Employment and Housing Act (FEHA) and whistleblower protection laws in the Labor Code, the unclean hands doctrine is inapplicable, when the defense purports to relate to acts occurring in the course of the employment relationship. See Murillo v. Rite Stuff Foods, Inc. (1998) 65 Cal.App.4th 833, 848-851 (FEHA case in which neither the after-acquired-evidence rule nor the unclean hands doctrine was applicable to claimed sexual harassment damages, notwithstanding her misconduct in misrepresenting her citizenship status). In general, “equitable principles may not be applied in opposition to statutory enactments or to defeat public policy established by the Legislature.” Angelucci v. Century Supper Club (2007) 41 Cal.4th 160, 171 (citing 13 Witkin, Summary of Cal. Law (10th ed. 2005) Equity, § 3, p. 285; McKennon, 513 U.S. at 360–362.

As the United States Supreme Court noted in McKennon, “We have rejected the unclean hands defense ‘where a private suit serves important public purposes’” like the elimination of workplace discrimination. McKennon, 513 U.S. at 360-361. See also Mortgages, Inc. v. U.S. D. Ct. For D. of Nev. (9th Cir. 1991) 934 F.2d 209, 213 (district court erred when it denied a motion to dismiss the counterclaims based on bad faith by False Claims Act (FCA) relators, reasoning that “[t]he FCA did not intend to ameliorate the liability of wrongdoers by providing defendants with a remedy against a qui tam plaintiff with ‘unclean hands.’”);  Ramirez v. Greenpoint Mortg. Funding, Inc., 268 F.R.D. 627, 638 (N.D. Cal. 2010) (Henderson, J.) (rejecting unclean hands defense in discrimination case based on public policy favoring broad equitable relief).

California law concerning public policy statutes is consistent with the federal precedents: “Where an employer has fired a worker in violation of a statutory ban on discrimination in the workplace, the purpose and effect of the antidiscrimination statutes are unacceptably undermined by a principle that would allow a fact that played no part in the firing decision to bar any recovery.” Camp v. Jeffer, Mangels, Butler & Marmaro (1995) 35 Cal.App.4th 620, 633. “When a plaintiff alleges wrongful termination in violation of public policy, that cause of action, like one based on discrimination, serves sufficiently important public purposes to outweigh a claim of unclean hands.” Id. at 635-636; General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164, 1181 (“[T]he doctrinal foundation of the public policy tort claim is not so much the plaintiff's continued interest in employment as the preservation of the public interest.”); De Burgh v. De Burgh, 39 Cal. 2d 858 (1952) (noting that “equity does not deny relief on the ground of plaintiff’s unclean hands when to do so would be harmful to the public interest”).

The only exception to the prohibition on an unclean hands defense to a public policy-driven statutory claim is where an employee's subsequently discovered wrongdoing would have prevented employment by the defendant from the outset. See, e.g., Murillo, 65 Cal.App.4th at 845 (plaintiff misrepresented herself as a legal resident alien, and her misrepresentations about her immigration status “went to the heart of the employment relationship,” and so precluded reinstatement remedy); Camp, 35 Cal.App.4th at 636, 638-639 (plaintiffs were convicted felons; defendant was precluded by law from employing convicted felons). In Camp, misrepresentations by the employees jeopardized the defendant law firm’s contracts with a government agency and potentially subjected the firm to accusations that it had made false statements to the government. Id. at 636-637. Camp suggested that unclean hands defenses are inapplicable where the supposed violations by the plaintiff relate to “internal, self-imposed requirements for the job” or its “voluntarily adopted policy.” Id. See also Cooper v. Rykoff-Sexton, Inc. (1994) 24 Cal.App.4th 614, 618-619 (reversing a summary judgment for employer on “unclean hands” where there was resume fraud by an employment discrimination plaintiff, finding that automatic forfeiture of claims was “too harsh a penalty” in many cases of misconduct – holding, “Where an employer has fired a worker in violation of a statutory ban on discrimination in the workplace, the purpose and effect of the antidiscrimination statutes are unacceptably undermined by a principle that would allow a fact that played no part in the firing decision to bar any recovery.”).

In sum, public policy underlying FEHA, Cal. Lab. §1102.5, and other important statutory protections, may prevent application of the unclean hands defense in your case, unless the evidence the employer possesses meets the tough “would have prevented employment” or “heart of the employment relationship” standard.

It is also important to argue that misconduct triggering the unclean hands doctrine must relate directly to the transaction at issue. See Camp, 35 Cal.App.4th at 638-639; Farahani v. San Diego Community College Dist. (2009) 175 Cal.App.4th 1486, 1495 (defense “closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief”) (emph. added). See also Lane v. Micro-Focus (U.S.), Inc. (W.D.Wash. 2010) 2010 WL 5018146, at *11 (dismissing unclean hands defense where Defendants did not show any “willful misconduct that has an immediate and necessary relation to Plaintiff’s requested relief”).

If the supposed misconduct does not relate to any actions you took for personal gain, then unclean hands may not be applicable. See CrossTalk Productions, Inc. v. Jacobson (1998) 65 Cal.App.4th 631, 643 (finding that the allegedly “unclean” conduct of the plaintiffs differed from that of the defendant because the plaintiffs “had nothing to gain”). See, e.g., Dawe v. Corrections USA (E.D. Cal. 2010) 2010 WL 682321, at *26-27 (rejecting unclean hands defense where defendants did not meet initial burden of presenting evidence that plaintiffs’ actions were wrongful). Whistleblower statutes, in particular, tend to recognize that sometimes “wrongdoers might be rewarded” – but establish that such a cost is worthwhile to incentivize those knowledgeable about unlawful schemes to step forward. Recall, supra, Mortgages, 934 F.2d at 213 (discussing that the FCA was established to “set[] a rogue to catch a rogue”). If you were not complicit in the scheme you have helped expose, or if you feared retaliation in speaking out about it, then the unclean hands defense may not apply.

A defendant employer should also be precluded from advancing an “after-acquired evidence” defense unless the employer learns for the first time about employee wrongdoing that would have led to the discharge in any event. See Camp, 35 Cal.App.4th at 632. It is the employer’s burden to “establish that the wrongdoing was of such severity that the employee in fact would have been terminated on those grounds alone if the employer had known of it at the time of the discharge.” McKennon, 513 U.S. at 362-363. See also Brahmana v. Lembo, 2011 WL 1674993, at *9-11 (N.D.Cal. 2011) (rejecting equitable defense where employee failed to disclose criminal record or prior incarceration, even though employee handbook noted material omissions on employment application could result in termination); Cooper, 24 Cal.App.4th at 617-619 (facts of the case did not support a complete bar to relief, because the employee had a spotless and competent work record with the employer until he was terminated); Murillo, 65 Cal.App.4th at 845-84 (after-acquired-evidence rule would not have supported summary adjudication of wrongful termination claims, because triable issue existed as to whether employer would have terminated the employee had it known that she was an undocumented alien). Like in Murillo, id., where there was evidence that the employer had hired other undocumented aliens despite knowledge of their immigration status and fraudulent documents, your employer  cannot rely upon “after-acquired evidence” where it has acknowledged that it does not terminate other employees for such conduct as is alleged against you.

Perhaps most importantly, if you can show the employer knew of your supposed misconduct while you were employed, and did not terminate you, the “after-acquired evidence” defense is inapplicable. Whereas in Murillo, there was a triable after-acquired evidence issue, because nothing in the record indicated that the employer knew previously that the employee in question was ineligible to work (id., 65 Cal.App.4th at 845-84), in your case, the opposite may be true – the employer may not be in a position to claim recent discovery of any misconduct.

Finally, you may argue that the court should rule upon the defenses in equity – they are only a matter for the jury if they are “so intertwined with legal claims that [they] cannot be separately tried to the judge.” Unilogic, Inc. v. Burroughs, Corp. (1992) 10 Cal.App.4th 612, 623.

If you have questions about the applicability of the “unclean hands” defense or “after-acquired evidence” doctrine in your case, please contact Bryan Schwartz Law.

*Note: nothing in this article, intended to be of general interest, is intended to create an attorney-client relationship or constitute legal advice to you. Each case is different, and Bryan Schwartz Law does not represent you unless you have a signed representation agreement with the firm.