Emotional Distress Damages in Employment Cases: Contract Remedies, Tort Remedies and the Importance of the Expert Witness

Article written by Jayme L. Walker and Gary Gwilliam

For many of us, our jobs play a central role in defining our identities. Loss of employment can be an especially traumatic event striking the core of who we see ourselves to be, and profoundly affecting our sense of self-worth and dignity. When the loss of employment is coupled with unfair treatment, such as discrimination or a bad faith breach of an employment contract, the emotional distress suffered by the terminated employee is compounded by the injustice of the loss.

Dr. Paul S.D. Berg is a clinical psychologist based in Oakland and a certified expert witness in California Superior Courts for psychological evaluation in civil and criminal matters. Dr. Berg has interviewed thousands of employees, and in his experience, he has found that for many people work occupies a central role in their life, equal for some people to social and family relationships. Loss of a job for these people may cause trauma equal to that experienced for any other major loss in life, such as the loss of a family member through death or divorce. He has found the degree of trauma associated with the wrongful loss of employment is often one of the top three most traumatic events these people have experienced in their life.

For these reasons, it is especially important to pursue emotional distress damages in employment cases, as the resulting distress from such an occurrence further affects the employee’s ability to mitigate their damages and to fully recover from the wrongful discharge. When an employee is suffering from the kinds of severe distress associated with such a traumatic event, reentering the job market can be a daunting prospect. It is, therefore, essential to obtain the contribution of a psychological expert to determine the meaning of work to the employee and to establish the impact of discharge on that particular employee.

This article will discuss the availability of emotional distress damages in employment cases, both those involving statutory and common law tortious discharge and those involving breach of an express or implied employment contract. This article will further discuss the importance of retaining an expert witness to evaluate the employee’s emotional distress and for both the expert witness and lay witnesses to testify about the employee’s emotional distress following the termination.

Availability of Emotional Distress Damages in Employment Cases

Emotional distress damages are available by statute for employment discrimination under the California Fair Employment and Housing Act Cal. Gov. Code § 12970 and under Title VII of the Civil Rights Act of 1964 42 USC § 1981(a)(1)-(2).

In addition, California has recognized a common law claim for wrongful termination in violation of public policy when a discharge violates an express statutory objective or undermines a firmly established principle of public policy. Tameny v. Atlantic Richfield Co., (1980) 27 Cal.3d 167, 172. In such cases, the employee’s cause of action “is one in tort and it therefore follows that rules relating to tort damages would be applicable.” Id. at 177.

The availability of emotional distress damages for breach of an employment contract has been subject to much scholarly debate. (See, e.g., Traynor, Bad Faith Breach of a Commercial Contract: A Comment on the Seaman’s Case(Cal. State Bar, Fall 1984) 8 Bus.L. News 1; Putz & Klippen, Commercial Bad Faith: Attorney Fees-Not Tort Liability-Is the Remedy for “Stonewalling”(1987) 21 U.S.F. L.Rev. 419.) Unfortunately, the California Supreme Court expressly repudiated the availability of a cause of action for tortious breach of the implied covenant of good faith and fair dealing in Foley v. Interactive Data Corp., (1988) 47 Cal.3d 654, 693.

In Foley, the plaintiff alleged a cause of action for wrongful termination in violation of public policy, breach of an implied contract and tortious breach of the implied covenant of good faith and fair dealing. In this landmark case, the California Supreme Court found that an implied contract for continued employment could arise and rebut the presumption of at-will employment. Such a contract could be based on the contrary intent of the parties and implied from “the personnel policies or practices of the employer, the employee’s longevity of service, actions or communications by the employer reflecting assurances of continued employment, and the practices of the industry in which the employee is engaged.” Id. at 680. However, the court went on to hold that tort remedies were not available for breach of the implied contract and that there was no such cause of action for tortious breach of the covenant of good faith and fair dealing. Id. at 693.

An exception to the rule that tort remedies are not available in contract cases has long been held to exist in the insurance bad faith context. In insurance bad faith cases, tort remedies are available for breach of the implied covenant of good faith and fair dealing. This is based on the inherently unbalanced relationship of the insurance carrier and the insured and the fact that people purchase insurance to secure peace of mind. The Court in Foleyheld that the employment relationship was not comparable to that of the insurer and the insured. The majority denied a cause of action for tortious breach of the implied covenant had ever existed in the employment context. However, the Court acknowledged the inadequacy of contract remedies for bad faith breach of an employment contract. Nevertheless, the Court said the issue of remedies for discharged employees was better left to the Legislature. Id. at 693-64.

In an eloquent dissent, Justice Broussard disputed the majority’s findings and stated that:

The principal reason we permit tort damages for breach of the covenant of good faith and fair dealing in an insurance contract is that persons do not generally purchase insurance to obtain a commercial advantage, but to secure the peace of mind and security it will provide in protecting against accidental loss. That reason applies equally to the employer-employee relationship. A man or a woman usually does not enter into employment solely for the money; a job is status, reputation, a way of defining one’s self-worth and worth in the community. It is also essential to financial security, offering assurance of future income needed to repay present debts and meet future obligations. Without a secure job a worker frequently cannot obtain a retirement pension, and often lacks access to affordable medical insurance. In short, in a modern industrialized economy employment is central to one’s existence and dignity.

Foley, 47 Cal. 3d at 709. Justice Broussard went on to argue that rather than engaging in judicial restraint by refusing to extend tort remedies to employment contract cases, the majority was abolishing a well-established remedy for the aggrieved employee.

Irrespective of the gravity of the decision’s effect on employment cases involving an implied contract, the vast majority of employees in California and elsewhere continue to be at-will employees. Therefore, although plaintiffs’ attorneys nearly always plead breach of an implied contract and breach of the covenant of good faith and fair dealing, most employment claims also allege wrongful discharge based on discrimination and violations of public policy. As discussed above, tort remedies, such as emotional distress, are available by statute and common law tort and, therefore, the important issue becomes establishing the severity of the distress and assisting the jury in evaluating claims of emotional distress damages.

Importance of Expert Evaluation and Expert and Lay Testimony for Emotional Distress Damages

Traditionally many attorneys relied only on the testimony of their client to establish emotional distress damages to the jury. Recently, plaintiffs’ attorneys are relying more and more on expert psychological evaluations of the client and the testimony of both expert and lay witnesses on the impact loss of employment has had on the emotional well-being of the employee.

This is particularly important because there is no precise standard for measuring damages from emotional distress. Instead, jurors are instructed to “use your judgment to decide a reasonable amount based on the evidence and your common sense.” See California Civil Jury Instructions (CACI, 2003 ed.) No. 3095A: Physical Pain, Mental Suffering, and Emotional Distress (Non-economic Damages). Thus, it is up to the attorney to assist the jury in evaluating the extent of the emotional distress damages suffered by the particular plaintiff in the loss of their employment. Because emotional distress damages are not easily calculable the way damages for lost wages and loss of benefits, an expert evaluation of the client’s mental state and the psychological impact the loss of employment has had on the client is essential. It is further important to show the profound psychological impact on the employee to contest allegations of failure to mitigate damages when the discharged employee is so demoralized from the termination that they cannot bring themselves to reenter the job market.

In addition to the testimony of a psychological expert witness, lay witness testimony from the plaintiff’s friends and family is important to show how the emotional damages sustained from loss of employment have permeated the client’s personal and professional life.

In the current state of the economy, turning one’s life around after such a distressing event is particularly difficult and has been especially hard on older workers. As Justice Kaufmann acknowledged in his dissent to Foley,“What market is there for the factory worker laid-off after 25 years of labor in the same plant, or for the middle-aged executive fired after 25 years with the same firm?” Hence, in the economic climate facing employees in California today, properly assessing and claiming emotional distress damages for wrongfully discharged employees is imperative. The current economic outlook significantly compounds the distress these employees are facing and highlights the difficulties these employees are having in reentering the job market after undergoing the trauma of an unfair discharge.

Gwilliam Ivary Chiosso Cavalli & Brewer, located in Oakland, California, represents clients with legal issues, in disputes or in litigation, involving employment law (wrongful termination, discrimination, harassment, whistleblower), personal injury, product liability, medical malpractice, insurance bad faith, and business/trade disputes. The firm’s practice extends to clients in cities and counties throughout the SF Bay Area and northern California.