The Employer’s Obligation to Indemnify Under Labor Code Section 2802 Applies to Third Party Suits – Not First Party Suits Against a Former Employee Brought By the Employer.
Labor Code section 2802 obligates an employer to indemnify its employee for the necessary expenditures or losses incurred as a direct consequence of the employee’s discharge of his or her duties, including the obligation to indemnify an employee who is sued by third parties for conduct that was within the course and scope of employment (i.e. paying any judgments and attorneys’ fees incurred in defending the action.
However, the Court in Nicholas Laboratories, LLC v. Chen held that Labor Code section 2802 does not require an employer to indemnify a former employee in an unsuccessful first party suit by the employer against the former employee. The Court left open the possibility of indemnification pursuant to Corporations Code section 317, which provides that a corporation must indemnify its agent if the agent is successful on the merits in defending against an action by the employer corporation (in the Chen case, Nicholas was not a Corporation and thus not subject to section 317). Further, the Court acknowledged that indemnification in a first party suit is possible pursuant to an indemnification agreement between the employer and it’s employee.