Can an employee receive compensation for a psychiatric claim if the injury resulted from the termination of his employment? What if the psychiatric injury was due to another form of discipline? Courts struggled with this issue prior to the enactment of Labor Code Section 3208.3. Some decisions found that such injuries were related to the employment, and thus, compensable. However, other decisions found that such injuries were not related to the employment.

In 1993, the Legislature amended Labor Code Section 3208.3 to bar claims for psychiatric injury caused by any “lawful, nondiscriminatory, good faith personnel action.” This good-faith personnel action defense was established for injuries occurring on or after July 16, 1993. The purpose of this law is to provide employers with a degree of freedom to make regular and routine personnel decisions, such as discipline, work evaluation, transfer, demotion, layoff or termination.

Good-Faith Personnel Action Defense Analysis

In the en banc decision of Rolda v. Pitney Bowes, Inc., the Appeals Board established an analysis for cases where an employee claims a psychiatric injury and the good-faith personnel action defense has been raised. If a medical report does not apply this analysis, it does not amount to substantial evidence. Reconsideration may be granted if a workers’ compensation judge does not apply this analysis. The analysis is as follows:

  1. First, the workers’ compensation judge must determine whether the alleged psychiatric injury involves actual events of employment.
  2. If so, whether competent medical evidence establishes the required percentage of industrial causation.
  3. If these first two conditions are met, the workers’ compensation judge must then decide whether any of the actual employment events were personnel actions.
  4. If so, the workers’ compensation judge must next determine whether the personnel action or actions were lawful, nondiscriminatory and made in good faith.
  5. Finally, if all these criteria are met, the personnel action must be a substantial cause, accounting for at least 35 to 40 percent, of the psychiatric injury.”

As you can see, the issue of whether actual events of employment caused the injury is separate from the issue of whether personnel actions caused the injury. These two issues must be assessed separately. A psychiatric claim will be found compensable if the employee establishes that industrial factors were the predominant cause of the injury and the employer fails to establish that personnel actions were a substantial cause.

Personnel Action

In Larch (Fleming) v. Contra Costa County, the Appeals Board defined personnel action as conduct either by or attributable to management, which includes actions taken by someone who has the authority to review, criticize, demote, or discipline an employee. It is not necessary that the action have a direct or immediate effect on the employment status. The issue of whether the employee’s psychiatric injury occurred as a result of a personnel action is a factual and legal issue for a workers’ compensation judge.

Personnel actions may include but are not limited to: transfers, demotions, layoffs, performance evaluations, and disciplinary actions such as warnings, suspensions, and terminations of employment. However, the Appeals Board has found personnel actions do not include ridicule by co-workers, harassment by third-parties, or a dispute between the employee and the employer regarding money owed to the employee.

Lawful, Nondiscriminatory, Good Faith

Whether the personnel action was lawful, nondiscriminatory and in good faith is also a factual and legal issue for the workers’ compensation judge. Labor Code Section 3208.3 does not define the type of personnel actions that are lawful, nondiscriminatory, good faith. The totality of the circumstances will determine whether the standard is met.

Although there is no precise definition or set of rules, the Court of Appeal found in City of Oakland v. WCAB (Gullet) that regular and routine personnel decisions made and carried out with subjective good faith allows the employer’s conduct to meet an objective reasonableness standard. The employer must: (1) believe it is acting in good faith; and (2) actually act in good faith, as a reasonable outside observer would see it. There must not be outrageous conduct with an intent to mislead, deceive, or defraud.

Substantial Cause

Medical evidence is required to determine whether personnel actions were a substantial cause of the injury. Labor Code Section 3208.3(b)(3) defines substantial cause as at least 35 to 40 percent of causation from all sources combined. In San Francisco Unified School District v. WCAB (Cardozo), the Court of Appeal held the entire set of industrial and nonindustrial causal factors must be considered in determining whether a psychiatric injury was substantially caused by good faith personnel actions. Since substantial causation is a medical issue, it is not determined by the workers’ compensation judge.


The California workers’ compensation defense attorneys of Yrulegui & Roberts are determined to ensure every possible defense is considered when representing employers and insurance providers in industrial injury cases. We have the knowledge, skills, and experience you can rely on. Contact our firm today and we can help with any questions you may have regarding psychological injuries, the good-faith personnel action defense, and any other workers’ compensation matter.