The Corporations Code Can Make Suing Your Former Employees Costly

by Allen Matkins

Supreme Court Justice Felix Frankfurter once told the following story about Oliver Wendell Holmes, Jr. and Ralph Waldo Emerson.   When Holmes at the urging of his father visited the great author, Emerson asked “Young man, have you read Plato?”  When Holmes said no, Emerson said:

You must. You must read Plato.  But you must hold him at arm’s length and say, “Plato, you have delighted and edified mankind for two thousand years.  What have you to say to me?”

Holmes dutifully completed the assigned reading “and then wrote a piece doing in Mr. Plato”.  Some time later, Holmes and Emerson met again and Emerson had this to say about Holmes’ paper: “Holmes, when you strike at a king, you must kill him.”  Felix Frankfurter Reminisces (1960) p. 58-59.

According to a recent unpublished decision by the Fourth District Court of Appeal, the same principle holds for lawsuits by corporate employers against their employees.  Parcell Steel Co., Inc. v. Sauer, Cal. Dist. Ct. Appeal No. G043444 (Feb. 12, 2012) involved an employer who sued several former employees after they quit and went to work for a company owned by one of the employees.  The employer contended that the employees had breached duties owed to it while still employed, misused confidential information to compete, and interfered with ongoing economic relationships with clients.  After a trial, the jury returned special verdicts finding in the defendants’ favor on all causes of action and the court granted the defendants’ motions for costs and attorneys’ fees. 

On appeal, the employer argued that the trial court had erred in awarding attorneys’ fees under Corporations Code Section 317.  In upholding the trial court’s award, the Court of Appeal noted that Section 317(d) provides that an agent of a corporation must be indemnified against expenses actually and reasonably incurred to the extent that the agent has been successful on the merits in defense of any proceeding by or in the right of the corporation (Section 317(c)).  The appellate court further noted that indemnification under Section 317 is not limited to third party lawsuits.  The court did note that a successful defendant moving for attorneys’ fees under Section 317(d) must establish that the alleged acts for which they were made parties were performed in connection with their corporate functions, and not with respect to purely personal matters. 

The decision was costly for the employer, the trial court awarded the employees attorneys fees and costs totaling hundreds of thousands of dollars.  The Court of Appeal then added the costs and fees incurred on appeal.

Readers may recall that in a decision last year, the Court of Appeals held that Labor Code Section 2802 does not require an employer to reimburse its employee for attorneys’ fees incurred in the employee’s successful defense of the employer’s action against the employee.  Nicholas Laboratories, LLC v. Chen, 199 Cal. App. 4th 1240 (2011).  See Court of Appeal Holds That Employee Indemnification Statute Does Not Reach “First Party” Lawsuits for why Section 317 was not applied in that case. 

The Parcell Steel case is unpublished and the California rules of court generally prohibit courts and parties from citing or relying on unpublished opinions.  Nonetheless, it may serve as a cautionary tale to corporate employers – if you sue your former employees based on allegations that they breached duties owed to the corporation while carrying out their specific duties as employees, you had better win.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen Matkins | Attorney Advertising

Written by:

Allen Matkins

Allen Matkins on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.