Employer Is Liable For Wrongfully Terminating Employee Because He Complained About Employer’s Fraudulent Misrepresentations

In Casella v. SouthWest Dealer Services, Inc., (— Cal.Rptr.3d —, 2007 WL 4328440, Cal.App. 4 Dist., Dec. 12, 2007), a California Court of Appeal considered whether an employer was liable for terminating an employee who had complained about employment practices which he believed to be fraudulent and illegal.

The court found that the termination violated public policy outlined in Penal Code section 487, which proscribes theft by false pretense through fraudulent misrepresentation, and that substantial evidence indicated the employer was knowingly requiring the employee to aid and abet in fraudulent activities.


Zachary Casella was employed in 2002 by SouthWest Dealer Services, Inc. ("SouthWest"), which sold "aftermarket" auto parts to auto dealerships and trained dealership salespersons to promote and sell its products to their customers. In his training, Casella discovered a practice called "payment assistance," "payment packing" or "leg," a practice by which a salesperson would quote a customer an artificially high monthly payment amount, and then try to sell the customer additional products offered at artificially low prices. The customer was not informed that the low prices for the additional products were subsidized by the already quoted artificially high monthly payment. Casella learned that his job included tracking the amount of "leg" that sales managers were building into their deals.

After complaining to his superiors that he felt the practice was deceitful, possibly illegal and should be stopped, Casella was terminated in April 2003. He sued SouthWest, claiming fraud and violation of Labor Code Section 970, and wrongful termination in violation of public policy. A jury found in favor of Casella and awarded him damages. SouthWest appealed.


The practice of quoting a false, higher payment amount to customers in hopes of luring them to buy aftermarket parts at artificially low prices “certainly falls within the prohibition of Penal Code Section 457, which proscribes making false or fraudulent representation or pretense to defraud another of money,” the court said. Casella’s claim was therefore supported by public policy and tethered to statutory authority, the court concluded.

The court cited Gantt v. Sentry Insurance (1992) 1 Cal 4th 1083, that listed categories of employee conduct subject to protection: “(1) refusing to violate a statute; (2) performing a statutory obligation; (3) exercising a statutory right or privilege; and (4) reporting an alleged violation of a statute of public importance.” The record plainly showed that Casella reasonably suspected SouthWest was committing or aiding and abetting the commission of fraudulent activities proscribed by Section 457, and his complaints about that activity were therefore protected, the court found.

The court also dismissed SouthWest’s claims that legislation passed in 2005, after this case went to trial, which specifically defined and outlawed “payment packing” proved that their conduct was not illegal at the time. That argument hinges on a “demonstrably false premise” that conduct outlawed by a new statute must have been previously permissible. In fact, Section 487 already proscribed theft by misrepresentation and Casella therefore did not require a statute specifically dealing with car dealers inflating monthly payment amounts for his complaints to be protected, the court ruled.

Substantial evidence also supported the jury’s finding that SouthWest required Casella to aid and abet the commission of fraudulent activities and the trial court did not err in denying SouthWest’s motion for judgment notwithstanding the verdict, the court added.

The jury verdict for Casella was affirmed.