The issue of whether individual directors have a right to inspect the personnel files of association employees has not received much attention. When it comes to this issue, there are conflicting rights between directors and employees. Corporations Code §8334 gives directors an absolute right to inspect and copy all corporate records:
Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director.
Employees have a competing right of privacy. Article I, Section 1 of the California Constitution provides:
All people are by nature free and independent and have inalienable rights. Among these are enjoying and defending life and liberty, acquiring, possessing, and protecting property, and pursuing and obtaining safety, happiness, and privacy.
Which is more important—an employee’s right to privacy or a director’s right to inspect records? Unfortunately, there is no case law directly on point. However, we can look at related rulings for guidance. Existing case law suggests that courts, despite the “absolute” language of Corporations Code §8334, do not consider directors’ rights as absolute and are willing to limit them to protect constitutional rights and to protect against improper use of records.
Voting Privacy. In Chantiles v. Lake Forest II, board member Tom Chantiles sought to compel the association to permit him to inspect ballots cast in an annual election of directors. This was prior to the implementation of secret balloting, which meant Chantiles would have known how each member voted. The court weighed Chantiles’ “absolute” rights as a director against privacy rights of the membership and sided with members. The court held that privacy rights outweighed inspection rights when it came to voting.
Divided Loyalties. In Wolf v. CDS Devco, the court held that a director who threatened litigation against the association gave up his right to inspect particular corporate records. The court reiterated its earlier holding in Tritek v. Superior Court, that a “court may properly limit a director’s inspection rights [when] the . . . director’s loyalties are divided and documents obtained by a director . . . could be used to advance the director's personal interest in obtaining damages against the corporation.”
Employment Law. We can also look to employment law for guidance. In Gilbert v. San Jose, (2004) 114 Cal.App.4th 606, the court looked at common law protections and held that before a city could disclose personal information collected under a city ordinance from employees working in the gambling industry, the employees must be afforded a fair opportunity to object to the disclosure and to limit the scope and nature of the information disclosed. Otherwise, the employees may have a claim for invasion of privacy under both common law and the California Constitution.
Personnel Files. The issue of a director’s right to inspect personnel files was raised in the Chantiles opinion when the court posed the hypothetical scenario of a director who ran for office on a platform critical of the general manager’s conduct and salary and demanded the manager’s personnel file to disclose its contents to the members. Unfortunately, the court did not indicate how it would rule on the hypothetical. However, it would reasonable to assume the court would have denied the directors’ request considering the scenario was used to demonstrate the problems created by Corp. Code §8334’s overly broad inspection rights.
Recommendation: When presented with a request from a director to inspect an employee’s personnel file, boards should notify the employee of the request and afford the employee a fair opportunity to object to disclosure of all or a portion of the records. In determining whether to comply with the request, boards should weigh the director’s right to inspect against the employee’s right to privacy. In doing so, boards must consider (i) whether the director has a legitimate purpose for the information, (ii) whether the director can fulfill his/her duties without inspecting the file, and (iii) the employee’s objections, if any.
Based on prior related rulings it is likely a court would deny a director’s request to inspect personnel files on the basis that an employee’s right to privacy outweighs a director’s right to inspect corporate records. Therefore, boards may want to err on the side of protecting the employee’s right of privacy and deny the director’s request. From a legal standpoint, the association would be in a better position defending itself in a lawsuit by a director denied access to an employee’s personnel file than an invasion of privacy suit by an employee.
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