Car Dealership Employee Fired After Complaining About Fraudulent Warranty Claims May Sue For Wrongful Termination in Violation of Public Policy

The Fourth District Court of Appeal recently held that a former car dealership employee’s allegation that he was terminated over his complaints of fraudulent warranty claims was sufficient to support a cause of action for wrongful termination in violation of public policy.  The Court reasoned that there is public interest in a workplace free from crime and that termination resulting from complaints about fraudulent warranty claims encompass potential violations of statutes proscribing theft and fraud.  (Yau v. Santa Margarita Ford, Inc. et al. (August 26, 2014,  G048013, G048343) ___ Cal.App.4th___).


Eddie Yau (“Yau”) worked at Santa Margarita Ford, Inc. (“Santa Margarita Ford”) as a service manager before he was terminated in February 2009.  After his termination, Yau filed a complaint for wrongful termination in violation of public policy, alleging, among other claims, that he was terminated after complaining to management that fraudulent warranty repair claims were submitted by Santa Margarita Ford to Ford Motor Company.

Yau alleged his termination violated public policy as set forth in a variety of statutes, including statutes proscribing theft and fraud.  The trial court sustained demurrers without leave to amend and dismissed the action, finding that Yau had failed to identify a public policy violated by his termination because the policies and statutes he cited did not “inure to the benefit of the public.”


The Court of Appeal reversed the ruling of the trial court.  In its discussion, the Court of Appeal cited the general legal principles set forth in Casella v. SouthWest Dealer Services, Inc. (2007) 157 Cal.App.4th 1127, for determining whether an alleged public policy is sufficient to support a wrongful termination in violation of public policy claim: “First, the policy must be supported by either constitutional or statutory provisions.  Second, the policy must be ‘public’ in the sense that it ‘inures to the benefit of the public’ rather than serving merely the interests of the individual.  Third, the policy must have been articulated at the time of discharge.  Fourth, the policy must be ‘fundamental’ and ‘substantial.’” [citations omitted.]  See link for KMTG's Legal Alert on the Casella case.

Yau contended that his complaint adequately alleged a public policy tethered to a statutory provision because the fraudulent warranty claims he complained about Santa Margarita Ford submitting to Ford Motor Company implicated potential violations of statutes proscribing theft (Pen. Code, §§ 484, 487) and fraud (Civ. Code, §§ 1572, 1709).  Santa Margarita Ford disagreed, arguing that Yau’s allegations affected only Santa Margarita Ford and Ford Motor Company, not the public at large, since it was Ford Motor Company that stood to suffer harm as a result of the alleged fraudulent claims.  In support of its argument, Santa Margarita Ford relied on American Computer Corp. v. Superior Court (1989) 213 Cal.App.3d 664 (“American Computer”), in which the court concluded that an employee’s report to company officers of suspected theft from the company by another employee did not implicate public policy. 

The Court of Appeal distinguished American Computer and sided with Yau, finding that Yau had adequately alleged a public policy tethered to statutory provisions.  In distinguishing American Computer, the Court of Appeal noted that the while the potential harm in American Computer was borne by the employer, a third party, Ford Motor Company, was potentially harmed by the conduct complained of by Yau.  The Court also noted that there is a “fundamental public interest in a workplace free from crime.”  Because Yau’s allegations encompassed violations of the law, the Court held that Yau’s allegations, if true, implicated that fundamental public interest.  Thus, the Court of Appeal reversed the ruling of the trial court.


If you have any questions concerning this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

David W. Tyra, Catherine V. Nystrom or Corrie L. Erickson | 916.321.4500