Carter v. Entercom: Court Clarifies Employer's Labor Code Section 2802 Duty to Indemnify for "Necessary Expenditures"

Carter v. Entercom Sacramento, LLC (9/3/13) --- Cal.App.4th --- is an unusual case in a number of ways. Here's the introduction to the Court of Appeal's opinion: 

As the result of drinking too much water in an ill-conceived radio contest, a woman died. Plaintiff Matt Carter had helped conduct the contest as part of his duties as an employee of defendant Entercom Sacramento, LLC, the company that owned the radio station. Although Entercom told Carter it would provide legal counsel for him, Carter chose to hire his own attorney. When the woman’s family sued Carter (as well as Entercom and others), Carter tendered defense of the action to Entercom’s insurer. The insurer accepted the tender without any reservation of rights and appointed a different attorney to represent Carter. Carter refused that attorney and insisted on being represented by the attorney he had chosen. When the insurer refused to pay for that attorney, Carter filed a cross-complaint against Entercom seeking indemnity under Labor Code section 2802 for the fees and costs he incurred. Subdivision (a) of section 2802 requires an employer to indemnify its employee “for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.”  

Slip op. at 1-2. 

The trial court held that Carter was not entitled to indemnity under Labor Code 2802 for any attorney fees incurred after the carrier offered to defend him, and the Court of Appeal affirmed. It held: 

Entercom did not have to pay for the attorney of Carter's choosing. Slip op. at 8-11. 

Substantial evidence supported the trial court's finding that the fees and costs that Carter incurred after he rejected counsel were not "necessary expenditures" under section 2802, and Entercom did not have to indemnify him for them. Slip op. at 11-17. The fact that Carter faced both potential criminal charges and punitive damages did not change this conclusion. The mere allegation of punitive damages does not require independent counsel, and Carter failed to show that he needed independent counsel to deal with the criminal investigation. 

The opinion is available here.