Editor’s Note – Mark Lies II is a labor and employment law attorney and partner with the Chicago, IL, law firm of Seyfarth Shaw. Legal topics provide general information, not specific legal advice. Individual circumstances may limit or modify this information.
In a recent decision from the Supreme Court of Kentucky, Wal-Mart, Inc., a major national retailer, was found liable for defamation to several former employees resulting from comments made by their supervisor after their termination. The employees were terminated for eating candy from open or torn bags removed from the store’s shelves that were to be processed and then discarded or returned to the supplier. Apparently, after the employees were terminated, the supervisor made statements to other employees that suggested that the terminated employees had engaged in theft of the candy and other items. The supervisor also allegedly submitted similar information to the state to contest the employees’ unemployment compensation. The employees brought suit against Wal-Mart and their supervisor.
Unfortunately, a jury was convinced that the employees had sustained damages to their reputations and emotional injuries – each employee was awarded $1 million for damage to reputation and $1 million for embarrassment, humiliation, and mental anguish. In addition, the employees were awarded $3 million in punitive damages.
On appeal, the Supreme Court upheld the verdict as to defamation but not as to the other claims and sent the case back to the lower court for retrial on damages relating to defamation. The sheer size of these potential damages resulting from an apparently trivial underlying incident (eating candy from opened bags) points out the monetary perils of defamation in the workplace for poorly taken action by supervisors relating to terminations.
Defamation
Defamation claims often arise in connection with claims of wrongful termination. The claims involve allegations by employees that supervisors or co-workers made false statements against them that have injured their reputation.
A potential defamation claim would exist, for example, if an employer falsely accuses an employee of:
• gross misconduct, theft, embezzlement, or falsification of records;
• using or abusing drugs;
• professional incompetence;
• criminal convictions or arrests;
• having a communicable or venereal disease.
Defamatory statements may be oral (slander) or written (libel) and may be communicated to individuals inside or outside the company. Any derogatory statements can be the basis of a defamation action, regardless of whether they were written or oral, and regardless of whether they were made to individuals within or outside the company. In some states, such as California and Minnesota, even a statement made only to the terminated employee may be considered as defamation. This could occur if a false reason for termination is placed in the employee’s personnel file and if the employee is compelled, as a practical matter, to repeat the reason for his discharge (which is allegedly defamatory) to other persons in searching for a new job. This legal theory is known as the doctrine of “self-compelled publication.”
Most states recognize that a company has a right to make derogatory statements about employees to certain persons within the company who have a need to know, and prospective employers who specifically request information about the employees. A company may lose this right, however, if the affected employee can prove that the statement was made with a reckless disregard for whether it was true. This right may exist for communications to individuals inside the company with a need to know as well as for certain communications outside the company. In the employment setting, defamation claims primarily arise from two situations:
1. Discussing an employee’s alleged poor performance, misconduct, or reasons for termination beyond those who need to know;
2. Responses to reference checks.
Defamation is a particular concern to employers when terminating employees. Employers dealing with poorly performing employees must take into account the potential exposure to liability that may be created by making written or oral statements that damage the employee’s reputation. This possibility typically is greatest at or near the time of the employee’s dismissal. Employers can frequently avoid defamation claims if they acquire and apply a basic understanding of the law in this area, and follow a few simple precautions.
Defamation liability may be avoided by:
• investigating and documenting incidents of employee misconduct thoroughly before imposing discipline, thereby avoiding a claim that the employer acted in “reckless disregard;”
• taking care to limit disclosure of the reasons for discipline to those with a legitimate need to know;
• keeping medical data (including drug testing results) strictly confidential;
• limiting responses to reference checks to confirmation of dates of employment and positions held;
• obtaining a signed release from an employee before releasing any employment data.
Caution: A release obtained from the employee will not protect the company against a lawsuit by the employee’s new employer for negligent referral. Such a lawsuit could arise if the company gives out only positive information while omitting negative information on the same subject matter. A release will not be sufficient in some states to protect the former employer from a claim for intentional defamation of character.
Employer Defenses to Defamation
An employer may put forth a variety of defenses in response to a defamation suit. They include truth, consent, statute of limitations, absolute privilege, and qualified privilege.
Truth
The truthfulness of the alleged defamatory statement serves as a complete defense to a defamation suit because it defeats an essential element (a false statement) of a defamation claim. The U.S. Supreme Court has ruled that truth is a complete defense, and true statements, even if damaging to reputation, may not give rise to a legal claim by the employee. The courts recognize this defense because the First Amendment guarantees free speech, and they do not want to discourage people from exercising their freedom of speech. This defense is often unsatisfactory, however, because the debate over whether a statement is true or false often involves a factual dispute that requires a case to go all the way to trial before the employer (hopefully) wins.
Consent
If an employee has agreed to the publication or communications of the alleged defamatory statement, this also serves as a complete defense to a defamation suit. For example, an employee may consent by authorizing the distribution of a memorandum containing negative comments about him or her to other management personnel, or by authorizing an employer to provide a reference about the employee to a third party. Courts recognize consent as a defense because they do not want to penalize an employer for relying on an employee’s words or actions that lead the employer to believe that it may communicate a potentially defamatory statement. But it may be dangerous to rely on a generalized consent to release information the employee has not seen, because some courts will hold that such a generalized consent is not a defense to a claim of intentional defamation.
Statute of Limitations
The statute of limitations can provide a complete defense to a defamation claim. A statute of limitations fixes the time within which court action must be initiated. In Minnesota, for example, the statute of limitations begins to run out two years after the alleged defamatory statement is written or spoken. In other states, such as California, the statute of limitations can be as short as one year.
Absolute Privilege
An employee may not recover damages for defamation if the allegedly defamatory communication is absolutely privileged. Courts recognize an absolute privilege in a variety of circumstances in order to further the public’s interest. Accordingly, statements have been held to absolutely privileged:
• when they are made by legislators during a legislative proceeding; or
• by participants in judicial or quasi-judicial proceedings; or,
• when there is a legal requirement to make a statement.
Where an absolute privilege exists, the employer has complete immunity from a defamation lawsuit, even if the employer made the remark out of sheer ill-will or malice. Absolute privileges exist because the courts wish to encourage employers and others, in special circumstances, to speak freely concerning compelling issues without fear of litigation.
Qualified Privilege
A qualified privilege exists when otherwise defamatory statements are made under circumstances where the person making the statement has a legitimate and reasonable justification to communicate. Under the right circumstances, the qualified privilege can serve as a complete defense to an employer’s defamatory statement. However, unlike an absolute privilege, a qualified privilege does not totally protect an employer from defamation liability. If the employer abuses the privilege, by spreading the statements beyond any legitimate business justification, or by making false statements of fact with a bad motive, the employer may lose the qualified privilege. The qualified privilege is most frequently asserted in the employment context when an employer convenes a meeting to discuss an employee’s conduct and negative comments are made. If this meeting was held so that truly legitimate employment issues could be addressed, and if defamatory comments were made in good faith concerning an employee during the meeting, the employer would not be liable for defamation. The courts recognize that an employer must be given the opportunity to discuss legitimate business issues, even if they result in otherwise defamatory comments concerning an employee, without fear of being sued for that discussion. Thus, the courts have held that an employer has the privilege or right to make otherwise defamatory comments in certain business meetings, so long as that privilege or right is not abused by the employer.
The employment related situations where this issue is likely to arise are:
• checking of references;
• drug testing;
• disclosure of employee records;
• disclosure of discipline or misconduct;
• searches of the employee, purses, lunch boxes, packages, lockers, or automobiles;
• electronic transmission of data.
In conclusion, an employer must be very careful in the manner in which it documents and conducts an employee termination. This care must also extend to the employer’s actions after the termination in order to avoid significant liability for defamation.
Labor and the Law - April 2005 Render