On June 26, 2014, the California Supreme Court handed down Salas v. Sierra Chemical, a case at the intersection of employment and immigration law. Salas, a former employee of Sierra Chemical, filed suit alleging disability discrimination and wrongful termination. Prior to trial, Salas notified the court that he would assert a Fifth Amendment privilege to any questions regarding his immigration status. This apparently alerted Sierra Chemical, which investigated and discovered that Salas had wrongfully used someone else’s Social Security Number when applying for the job. Sierra then moved for summary judgment. The trial court initially denied the motion only to be reversed by a writ issued by the Court of Appeal. On remand, the trial court granted the motion for summary judgment, and the Court of Appeal affirmed.

The Supreme Court was called upon to determine whether plaintiff’s claims under the California Fair Employment and Housing Act (“FEHA”) were barred by the doctrines of after-acquired evidence and unclean hands, and whether California Senate Bill No. 1818, which states that “[f]or purposes of enforcing state labor, employment, civil rights, and employee housing laws, a person’s immigration status is irrelevant to the issue of liability,” statutorily preempted those common law defenses. The Supreme Court also asked the parties to submit briefing on whether federal immigration law, which forbids the knowing employment of any unauthorized worker, preempted state law on this issue.

The Court first held that federal immigration law preempted Senate Bill 1818 only in part. Citing the U.S. Supreme Court’s recent decision in Arizona v. U.S., 132 S. Ct. 2492 (2012), the Court held that federal law did not “preempt the field” – that is, supersede any and all state laws relating to immigrants. Instead, federal law only preempts state laws that conflict with a federal law or create an obstacle to achieving its objectives. Federal statutes expressly forbid an employer from employing anyone whom it knows is unauthorized to work in this country; doing so would subject an employer to civil and criminal sanctions. Thus, federal law preempts an award of lost wages that would have accrued after the employer discovered that the employee was unauthorized. However, since federal law does not forbid an employer from unknowingly employing an authorized worker, any preexisting lost wage claim remains valid.

The Supreme Court reversed the Court of Appeal’s holding that the affirmative defenses of unclean hands and after-acquired evidence served as complete defenses to Salas’s claims. Instead, the Court held that these are partial defenses whose application depends on the particular equities of each case. As a general rule, the Court held that “when the employer shows that information acquired after the employee’s claim has been made would have led to a lawful discharge or other employment action, remedies such as reinstatement, promotion, and pay for periods after the employer learned of such information would be inequitable and pointless,” thus precluding a plaintiff from claiming such relief.

However, in line with the U.S. Supreme Court’s decision in McKennon v. Nashville Banner Publishing Co., 513 U.S. 352 (1995), the California Supreme Court held that “to allow . . . after-acquired evidence to be a complete defense would eviscerate the public polices embodied in the FEHA by allowing an employer to engage in invidious employment discrimination with total impunity.” Consequently, the employee could seek compensation “for loss of employment from the date of wrongful discharge or refusal to hire to the date on which the employer acquired information of the employee’s wrongdoing or ineligibility for employment.” The Court did not address the effect that after-acquired evidence or unclean hands could have on a plaintiff’s claim to compensatory or punitive damages, although it has generally been held that a plaintiff may seek such damages in connection with his or her claim of employment discrimination.

The Court found that there was a disputed issue of fact whether Sierra Chemical knew of the incorrect Social Security Number before Salas’s termination. If it did, the employer’s decision to “look the other way” would adversely affect its right to assert the after-acquired evidence and unclean hands defenses. The Court thus remanded for further findings of fact on this issue.

As this opinion addresses the “hot topic” of illegal immigration, in a field traditionally reserved solely to federal authority, it will be interesting to see whether Sierra Chemical seeks review by the U.S. Supreme Court. Assuming that this result stands, the primary takeaway for employers is, as ever, to remain vigilant about the employment status of their employees and to take the appropriate action upon receiving information showing that the employee lacks authorization to work in this country. In addition, when faced with litigation, a defendant should take the initiative to investigate potential affirmative defenses at an early stage of litigation and assert them as quickly as possible.