California Court of Appeal: Defamation Claims Cannot Be Based Solely on Termination Conduct

A recent decision from the California Court of Appeal provides important guidance for employers facing defamation claims brought by former employees. In Hearn v. Pacific Gas & Electric Co., 108 Cal. App. 5th 301 (2025), the court held that an employee cannot recover damages for defamation when the alleged defamatory statements are part of the same investigation or disciplinary process that led to their termination—and when the claimed harm is limited to the termination itself.

This decision clarifies the boundary between defamation and wrongful termination claims in the employment context and reinforces best practices for how employers should conduct internal investigations.

If you have any questions about the Hearn decision and how it may apply to your policies and procedures, please contact our Managing Partner, Richard Liu, Esq. at contact@consultils.com.

Case Background

Todd Hearn worked as a lineman for Pacific Gas & Electric Company (PG&E). In 2018, PG&E conducted an internal investigation into possible timekeeping discrepancies, relying on GPS data, witness interviews, and time records. Following the investigation, Hearn was suspended and ultimately terminated.

Hearn filed a civil lawsuit asserting four claims:

• Retaliation under California Labor Code section 1102.5, based on allegations that he reported safety violations

• Retaliation under Labor Code section 6310, for allegedly raising complaints about unsafe working conditions

• Wrongful termination in violation of public policy

• Defamation, based on statements contained in PG&E’s investigative report

  
  

Only the claims for retaliation under section 1102.5 and defamation proceeded to trial. The jury rejected the retaliation claim but awarded Hearn approximately $2.16 million in damages for defamation, finding that PG&E’s internal report falsely implied misconduct.

PG&E appealed the verdict, contending that Hearn’s defamation claim was legally improper because it relied entirely on the same conduct and statements that justified the termination.

Appellate Court’s Ruling

The California Court of Appeal agreed with PG&E and reversed the defamation judgment. The court outlined a two-part standard for evaluating defamation claims in the context of employment terminations:

1. The allegedly defamatory statements must be based on conduct that is separate from the conduct that led to the termination.

2. The damages claimed must be distinct from the harm caused by the termination itself.

   
   

The court found that Hearn’s claim failed both parts of the test. The allegedly defamatory statements were made as part of PG&E’s internal disciplinary process and directly related to the decision to terminate him. In addition, Hearn did not present any evidence of reputational harm separate from the fact of losing his job. He did not claim that the statements were published outside the company or that they caused harm to his future employment prospects.

The court emphasized that an employee may not simply reframe a wrongful termination claim as a defamation claim. In the absence of independent defamatory conduct and distinct reputational harm, the defamation claim cannot stand.

California Supreme Court Review Pending

The California Supreme Court has agreed to review the case on May 14, 2025, limited to the question of whether an employee may bring a defamation claim when the alleged defamation contributed to the termination. While the case is under review, the Court of Appeal’s decision remains binding and provides a useful legal framework for employers.

Key Takeaways for Employers

The Hearn decision provides practical guidance for employers responding to defamation claims that arise out of workplace investigations or disciplinary proceedings.

• Conduct fact-based investigations: Internal reviews should be limited to objective facts. Avoid inserting speculation, opinions, or language that implies moral judgment.

• Limit access to disciplinary records: Only those involved in the decision-making process should have access to investigative findings. Sharing information more broadly, even within the organization, increases legal risk.

• Evaluate defamation claims critically: When an employee brings a defamation claim, assess whether the statements in question were made as part of the termination process. Also consider whether the employee claims any harm beyond being fired. If not, the employer may have strong grounds to seek dismissal based on the Hearn decision.

• Strengthen internal procedures: Employers should regularly review their investigation protocols and documentation practices. Involving legal counsel early during sensitive disciplinary actions can help minimize liability.

If you have any questions about the Hearn decision and how it may apply to your policies and procedures, please contact our Managing Partner, Richard Liu, Esq. at contact@consultils.com.

Disclaimer: The materials provided on this website are for general informational purposes only and do not, and are not intended to, constitute legal advice. You should not act or refrain from acting based on any information provided here. Please consult with your own legal counsel regarding your specific situation and legal questions.

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Richard Liu, Esq. is the Managing Counsel of ILS. He serves clients as a management-side defense lawyer specializing in employment and business litigation. Richard is also an expert on litigation prevention and compliance. He regularly advises Fortune 500 companies and startups on employment, labor, and commercial matters.

Email: contact@consultils.com | Phone: 626-344-8949