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Have you ever had to fire an employee because he or she either negligently or deliberately mishandled the books? If so, you may have wondered what kind of a preliminary investigation was required before you could fire the employee or press criminal charges against him for the suspected misconduct without risking liability. Read on to find out how the Tenth Circuit Court of Appeals (which covers Utah) ruled in a recent case about the firing of a convenience store manager who somehow lost track of thousands of gallons of gasoline.
Gas Shortage Sparks Firing of Manager
Victor Daramola, a highly educated African-American man, worked as a manager of a Coastal Mart convenience store in Edgewater, Colorado for five years. In the fall of 1999, Daramola’s superiors became aware of significant shortages of gasoline and cash from the store he managed. When Daramola’s immediate supervisor, Celestino Molina, investigated the shortages by reviewing the daily sales reports, he discovered a total inventory loss of 15,875 gallons of gasoline, and underreporting of 13,214 gallons of gas sales, and lost sales of $17,052. Ruling out other possibilities for these shortages, such as leaking gas pumps, incorrect pump calibrations, and computer malfunctions, Coastal Mart supervisors placed the blame squarely on Daramola’s shoulders.
Molina told Daramola to report to his office to discuss some issues with overtime. At this meeting Molina instead confronted Daramola with the daily sales reports and asked him to account for the shortages. What happened next is disputed. Coastal Mart officials claimed that the meeting lasted an hour and that Molina admitted that he couldn’t account for the shortages and that a store manager who consistently under-reported sales should be fired. However, Molina stated that the questions about the daily sales reports didn’t make sense to him and that he was told he was fired within three to five minutes.
Soon after this meeting, Coastal Mart reported the loss of gas and cash at the store to the police and provided them with the daily sales reports. The police then met with Daramola, who told them that the losses might be explained by computer and cash register malfunctions, shortages during gasoline deliveries, fluctuating gas tank volumes caused by changes in temperature, and the incompetence of Molina. Unconvinced, the police filed an affidavit of probable cause and Daramola was eventually arrested. However, the criminal charges against Daramola were eventually dropped after the police had difficulty securing the cooperation of witnesses to testify against Daramola.
Daramola then filed an action against Coastal Mart, alleging, among other claims, a § 1981 civil rights claim for racial discrimination. The federal district court dismissed the action without a trial.
Presumably from the stress of the discharge, the criminal charges, and the resulting litigation, Daramola suffered a stroke and died. His estate then appealed his case to the Tenth Circuit.
Employers Needn’t Be Wise, Fair or Correct, But Must Be Honest and Believable
The estate argued that the case shouldn’t have been dismissed because there was evidence that Coastal Mart’s stated reasons for discharge—“not being responsible to take care of the assets of the company” and “improperly enter[ing] the gasoline information [in] violation of company policy”–were pretext, that is, were false explanations intended to cover up a racially discriminatory reason. In particular, the estate pointed to the following as evidence of pretext: (a) alleged inadequacies in Coastal Mart’s pre-discharge investigation of the suspected shortages; (b) alleged procedural irregularities in the discharge proceedings; (c) varying explanations of the reasons for discharge; (d) indications that Daramola was treated differently than nonminority employees suspected of similar misconduct; and (e) evidence that Coastal Mart discriminated against him and against other African-Americans.
The Tenth Circuit addressed each one of these points and concluded that none established pretext for discrimination in this case. First, the court reviewed the pre-discharge investigation and decided that the alleged deficiencies were insufficient to show pretext for discrimination. The estate had argued that Coastal Mart failed to review evidence that was easily accessible and that would have exonerated Daramola. For example, there were six audits of the store conducted during the relevant time period and none showed any shortages of gas or cash. However, the court concluded that Coastal Mart didn’t need to rely on these audits because of its testimony that the audits only would have revealed shortages on the days they were taken and did not review past daily sales reports. Moreover, the evidence of computer malfunctions with the system to record gasoline sales didn’t exonerate Daramola. Although the computer did malfunction on at least four occasions, the sales reports showed a steady loss over a period of six months that did not correspond to the dates the computer system went haywire. Furthermore, although the court recognized that Coastal Mart could have been more thorough in its investigation by consulting in-store video tapes and bank records and interviewing employees of the store, such evidence wasn’t likely to clear Daramola’s name even if reviewed because Daramola could have tampered with the bookkeeping without it being reflected in any of these sources.
The court also concluded that the alleged procedural irregularities in firing Daramola did not show pretext. The estate argued that Coastal Mart failed to (1) talk to Daramola during the investigation, (2) afford him an adequate opportunity to defend himself, (3) adequately investigate the cause of the reported shortages, (4) engage in progressive discipline, (5) consult with the Employee Relations Department and Legal Department before filing a police report as required by company policy, and (6) inform the police of important facts such as Daramola’s excellent job history and the fact that he reported some shortages himself. The court summarily rejected all but the fifth allegation, because the estate failed to show that the other allegations violated any company policy. However, because Coastal Mart violated its policy by informing the police after Daramola had already been fired and because the information provided to the police was neither false nor misleading, the court decided that this oversight did not show pretext for discrimination.
The estate also argued that pretext was shown because Coastal Mart provided varying explanations for Daramola’s discharge. At times its officials stated that Daramola was fired because he had stolen from the store, while later an official admitted that there was no direct evidence of theft. The court rejected this argument, reasoning that the different inferences that various Coastal Mart personnel drew about the question of theft did not undermine the company’s reliance on the shortages as the justification for the discharge.
Next, the estate claimed that Daramola was treated differently from other employees who were held responsible for shortages. Other employees similarly accused were confronted at their own stores where they could refer to the relevant records and were given warnings prior to discharge. However, the court rejected this argument because Daramola never referred to records at his store that would have exonerated him after he was fired or when he was interviewed by the police. Moreover, the other employees who had received warnings rather than being fired were held responsible for much smaller shortages ($300 to $1400) than was Daramola ($17,000).
Finally, the court concluded that there was not enough direct evidence of discrimination to show pretext. The estate related an incident where Daramola had complained to Molina when his wife and daughter who worked for the store were given a raise of only ten-cents-an-hour while a white employee at another store was given a fifty-cents-an-hour raise. In response to Daramola’s complaint, Molina refused to raise their salaries higher, allegedly commenting, “After all, they are your people.” While the court found that this remark was presumptively offensive, it decided that it was insufficient to show racial animus because it was an isolated remark unrelated to the challenged action.
In reaching the above conclusions, the court emphasized that “[t]he relevant inquiry is not whether the [employer’s] proffered reasons were wise, fair or correct, but whether [the employer] honestly believed those reasons and acted in good faith upon those beliefs.” However, the court also noted that a business judgment may be so idiosyncratic or questionable that it’s just not believable, but such was not the case in reviewing Coastal Mart’s reasons for firing Daramola. Estate of Daramola v. Coastal Mart, Inc., 2006 WL 497549 (10th Cir., March 2, 2006).
Accountability for the Unaccountable
It is important to understand that while the court rejected the estate’s arguments in this case, insufficient investigations prior to discharge, procedural irregularities, glaring contradictions in an employer’s explanations for discharge, differing treatment among employees, and racial comments all can show pretext to allow a case to proceed to trial under different circumstances. For example, if Daramola’s estate had shown that Coastal Mart had violated a company policy for handling such matters prior to firing Daramola or that another employee accused of under-reporting comparable shortages had been let of the hook with a mere warning, the court may have allowed the case to proceed to trial.
Although the case does demonstrate that employers are not required to thoroughly investigate every angle of the suspected misconduct prior to firing an employee, employers should make reasonable, good faith efforts to investigate other possible causes of a shortage in cash or inventory. In the above case, Coastal Mart officials checked to see if the shortages could have been caused by leaking gas pumps, incorrect pump calibrations, or computer malfunctions prior to firing Daramola. To protect yourself against potential claims of discrimination, it is always a good idea to take such investigative measures and to document your findings before assuming the worst of your employee.
If the investigation confirms your suspicions about the employee, you can contact the police to conduct an investigation of their own. You are free to provide the police with the evidence that you have gathered, and then the police will determine whether probable cause exists before criminal charges can be filed. You should adopt a policy about when you make police reports. Any reports should be made promptly and not be in retaliation for claims of discrimination or harassment.