Employee Lawsuits: Defamatory Behavior

Employers are liable for numerous forms of defamatory behavior.

Alex Irving, owner of Alexir Metal Fabrication, was in a bad mood. His shop superintendent, Larry Simpson, had just given him the results of his August tool inventory. It was dismal again. The company was losing money hand over fist because of employee theft. Hand tools and power tools were disappearing. "Larry," said Alex to his superintendent, "this has got to stop! I thought you said the installation of security cameras would put an end to this thievery."

Larry said, "Look, Alex, I try to watch these guys but I can't be everywhere at once. They leave at lunch time, they stop work at different times because of the stupid "flex scheduling" you instituted; you even let them come in on weekends to do personal jobs. I can't control all these comings and goings!"

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"All right, calm down," said Alex. "There must be something else we can do." "Well, there is one thing we should start doing," replied Larry. "We can institute a random tool box check - you know, search their tool boxes when they leave." "Is that legal?" asked Alex. "Yeah, I think so," said Larry. "They used to do that at Acme Tool and Die when I worked there."

Alex told Larry Simpson that he wanted him to be in charge of the tool box searches. In fact, he told Larry that he did not want anyone else involved in the searches; only Larry would be doing the random checks. As the meeting was ending, Alex said, "This better work, Larry. We need to get things under control." Larry replied, "Don't worry about a thing, Alex. It will work; I'll see to that."

Larry knew what he would do. There was one young, long-haired loudmouth, Rick Samsom, who Larry thought was a troublemaker. He had only been working for the company for about six months and already Larry had written him up for insubordination. The company tools were clearly marked; it would be simple enough to slip one into Rick's tool box when he wasn't looking. He just had to watch out for Billy Jasper, Rick's buddy and only real friend at the shop.

About 20 minutes before quitting time on Thursday, Larry called Rick on the intercom and said, "I need you and Billy to clean up that scrap metal out back before you leave. In fact, you may have to stay about a half hour overtime. Just bring your gloves, you won't need any tools."

About a half hour later, after checking on Rick and Billy, Larry made his way through the shop to the work bench where Rick always kept his tool box. He found it without a problem and it was unlocked. Although most of the guys in the shop had left, there were still a few people finishing up. Glancing around quickly to make sure everyone in the shop was otherwise occupied, Larry saw his opportunity. He lifted the top tray of Rick's tool box and slipped a power screwdriver belonging to the company into the bottom of the box.

About 20 minutes later, Larry stopped Rick and Billy as they headed out of the shop. "Hold on, boys," Larry said, "I need to check your tool boxes." "No problem, Boss," Rick said sarcastically, smiling at Billy. First, Larry checked Billy's tool box and lunch box. It was clean. Then, he had Rick open up his tool box. He lifted the top tray, reached in, and pulled out the power screwdriver belonging to the company.

"What's this, Mr. Samsom?" asked Larry accusingly. Rick looked shocked, "How the hell did that get in there? I didn't put that in there!" Billy chimed in, "Hey, man, I was just looking in Rick's tool box for a wrench right before you called us to go out back to clean up. That screwdriver wasn't in there." "Well, it's in there now," said Larry. "Let's go to the office, Rick." Rick protested, "Look, I'm telling you. I've been set up." Larry smiled and said, "Come with me, Rick. I'll put your statement on the discharge form."

The next day, Larry told Alex what happened. Apparently, Billy Jasper had been in to see Alex first thing that morning, but Alex was not there yet. Billy left a written statement for Alex recounting the fact that he had looked in Rick Samsom's tool box just before Larry had sent him and Rick to clean up and the screwdriver wasn't in there.

Alex asked Larry, "What did Rick have to say when you fired him?" Larry replied quickly, "Nothing much, just what he wrote on that form there. You know, that he was set up. Of course, all crooks claim they were framed, you know that." Alex thought a minute and said, "What about this statement from Billy Jasper?" Larry said, "Billy is Rick's drinking buddy. He'll say anything to save Rick's job."

Alex said, "Have you said anything to the other guys?" "No, not yet," said Larry. "I thought you might want to handle that."

"Do I have to say anything?" asked Alex. "They all probably know anyway." Larry answered Alex quickly, "Are you kidding? This is our chance to stop all this thievery once and for all. We need to make an example of this kid. You tell them what happened - that we found company property in his toolbox and that when that happens, the employee has to be fired. They'll get the message."

Alex decided to go along with Larry's idea. He was worried about the loss of inventory and felt that making an example of Rick would discourage other employees from stealing. He had Larry assemble the shop employees right before he handed out the payroll checks. They took the news in silence, all except Billy Jasper who walked out of the meeting. After the meeting, Larry posted notices on the bulletin boards reminding employees of Rick's "attempted theft of company property" and alerted all employees that the random tool box checks would continue indefinitely.

About three weeks later, Alex got a call from Rick Samsom's lawyer, who said he was giving the company a chance to settle before he sued for defamation. When Alex tried to tell the lawyer that they caught his client red-handed with the power screwdriver, he said, "Maybe you ought to talk to one of your employees, Charley Lawson. He'll tell you what really happened." The lawyer then explained that Charley had seen Larry Simpson put the screwdriver in Rick's tool box.

When Alex met with Larry, he denied putting the screwdriver in Rick's tool box, calling Charley Lawson a liar. "I don't know why he's helping out that kid," said Larry, "but I didn't set nobody up." Alex could always tell when Larry was lying, but he didn't let on. When Larry had left, Alex called Rick's lawyer and asked him what he would want to settle the whole thing. The lawyer said he would not take "a penny less than $100,000."

Defamatory Communication

In today's litigious society, an employer is vulnerable to numerous legal challenges for a variety of communications that arise during the employment relationship. In particular, an incorrect or untrue communication regarding an employee may give rise to a cause of action for defamation. A defamatory statement is usually described as an untrue communication that exposes the individual to "public scorn, hatred, contempt, or ridicule" and thus injures his reputation. In order to bring a successful defamation action, the plaintiff must, at a minimum, establish that the alleged defamatory publication was communicated to a third person who recognized the communication to be defamatory. The plaintiff should also be prepared to show that he was damaged by the defamatory publication. In many jurisdictions, however, statements that injure an employee in his or her trade, business, or profession are considered libel per se, resulting in a presumption of damages. Special damages need not be pleaded or proved to sustain the claim.

Defamation by Conduct

As explained above, defamation usually requires a defamatory "communication" to a third party. One issue that sometimes arises in discharge cases is whether conduct that implies that another person engaged in some kind of misconduct or violation of policy is sufficient as a defamatory communication. For example, in a case decided by the Maryland Court of Appeals, an employee was accused of stealing inventory from an automotive plant and was forcibly detained by four security guards as he left the plant. The plaintiff had to be grabbed by the guards and "assisted" to the guard shack while the plaintiff continued "screaming and shouting." He was questioned inside a glass-enclosed guard shack for 25 to 30 minutes, in full view of approximately 5,000 employees who were in the process of changing shifts. The employee traffic slowed as it passed the guard shack because the incident was unusual. Also, there was testimony that it was well-known that anyone who was detained by security guards was probably suspected of theft. The court held that the conduct of the guards was defamatory publication by conduct.

In a subsequent decision by another Maryland court, an employee who was escorted to her locker by three supervisors and then out of the nursing home was held not to be a defamatory publication by conduct. The court said that there was no testimony that "being accompanied to her locker and then from the building was in any way unusual or even that it was so perceived by other employees and residents of the nursing home." The court said that it did not believe that the mere act of an employer escorting an employee from the building after termination of employment constitutes a defamatory publication.

The cases that have found conduct to be a defamatory communication have usually involved facts that describe a fairly dramatic interplay of both words and conduct. For example, in the case of the employee detained at the automotive plant, the conduct of the guards in grabbing and detaining the employee resulted in an award of damages for assault and false imprisonment. In contrast, "escorting" discharged employees as they exit an employer's facility has not been construed to be so unusual (or perhaps not so egregious) as to give rise to a defamation by conduct claim.

As explained in the section on abusive employees, employers should take reasonable actions to protect other employees and even company property from the potential violence that can occur when an employee is discharged. Escorting an employee from the premises may be a necessary precaution. As defamation by conduct cases are the exception, rather than the rule, employers should not refrain from using an escort after termination because there exists a remote potential for a defamation suit.

The Qualified Privilege

Communications arising out of the employment relationship normally enjoy a qualified privilege. A false communication remains privileged when both the communicating party and the recipient have a mutual interest in the subject matter of the communication or some duty with respect to the communication. The privilege applies as long as the defendant acts in good faith and without malice. For example, communications from a former employer to a prospective employer are conditionally privileged. Similarly, in-house publications of defamatory communications in order to facilitate personnel administration are normally within the qualified privilege. As the privilege is qualified, however, it can be lost if the communication is made with "express or actual malice" or with excessive publication.

Express or actual malice means that the employer either had "knowledge of falsity or reckless disregard for the truth." Reckless disregard for the truth requires a showing that the employer had a high degree of awareness of the probable falsity of the communication. Accordingly, an employer may not "cover its eyes to the truth" or avoid conducting a routine investigation of a matter that would have uncovered the truth. For example, in one case, an employer's failure to conduct a routine inventory check prior to accusing an employee of theft was evidence of the employer's reckless disregard of the truth. Similarly, in another case, the failure of a supervisor to ask a long-term employee about an alleged breach of security was held to be reckless where the supervisor doubted that the employee's conduct breached security but nevertheless stated that it did.

Excessive publication occurs when individuals who do not have a legitimate job-related interest in a communication are nevertheless allowed to hear or read the published material. Thus, it would not be considered excessive publication to have a secretary type a letter that notifies an employee of his or her termination and explains the reasons for the termination, nor would it be inappropriate to show this letter to the employee's immediate supervisors. Each of these individuals has a legitimate job-related interest in the discharge letters. On the other hand, a general company-wide announcement about the reasons for the termination may be considered excessive publication because all employees at the facility do not have a legitimate job-related interest in the termination decision.

Defamation During Employment Relationship

There are situations that arise during the employment relationship that can be fertile ground for defamation claims. For example, many employers require employees to undergo medical examinations at the start of employment. Medical information gathered during the examination must be kept in strict confidence. In addition to statutory liability for failing to safeguard the confidentiality of employee medical records, employers may also face defamation claims for communicating incorrect information regarding the medical condition of employees.

An employer who falsely characterizes an employee's mental condition can be potentially liable for defamation. For example, in a Massachusetts case, an employee sued his employer for libel and invasion of privacy after the director of personnel programs described his mental condition in a memorandum to an undetermined number of managers at the company. The employee had complained to his supervisor that he was suffering from "bad nerves, headaches, and an inability to sleep." At the suggestion of the supervisor, the employee went to see a general practitioner retained by the company. After the visit, the doctor called the employee's supervisor, telling him that the employee was paranoid and should see a psychiatrist immediately.

At a subsequent grievance meeting with his supervisor, the employee was distraught and crying. The supervisor made an appointment for the employee with a psychiatrist. The director of personnel programs summarized the events in a memorandum that stated his opinion that the latest episode between the employee and the supervisor indicated that the employee appeared to have a mental problem that went beyond the company's ability to handle. The employee alleged in his complaint that approximately 16 people learned about his medical condition.

Although the plaintiff's complaint was dismissed by a federal district court, the Supreme Judicial Court of Massachusetts ruled, on certification from the federal court of appeals, that an employer could lose its conditional privilege to disclose defamatory medical information if the information was "recklessly disseminated." The court also noted that an unambiguous publication that an employee had a specified mental disorder that makes him unfit for his job would be a publication defamatory on its face. Although the court of appeals ultimately affirmed the dismissal of the libel claims because the factual record did not establish a "reckless dissemination" (in fact, the court concluded that only two managers received the alleged defamatory memorandum), this case points out the potential danger in publishing medical information regarding employees, even to other managers within the corporation.

Another dangerous area of investigation for employers occurs when employees are requested to undergo drug testing. In order to be confident that its investigation into employee drug use is not reckless with regard to the truth or falsity of the test results, the employer must make sure that the testing is done at a certified laboratory that follows all federal guidelines for the collection and testing of urine specimens. In particular, the laboratory must use a confirming test that maximizes the accuracy of the test results. An employer must also maintain strict confidentiality standards with regard to the reporting and use of the results of drug tests. If an employer discloses that an employee has tested positive for the use of drugs and this information is later discovered to be incorrect, the employer may find itself facing defamation charges. Therefore, an employer can minimize the potential for a charge of defamation if confidentiality procedures are developed or strictly enforced. Even if the results of the tests are incorrect, the publication of the erroneous test results will not be actionable if it was not communicated to anyone other than those individuals who have a business need to know the results.

In a case out of Texas, an employee was tested for drugs after an on-the-job injury. The company doctor reported to the personnel office that the test was positive for methadone but added it was only a trace amount. The personnel office sent an internal memo to seven managers telling them that methadone was found in the employee's urine and that methadone is used by heroin addicts. The memo did not mention that only a trace amount was found in the urine specimen. The employee was fired for a safety violation and sued the company for libel. A jury awarded the plaintiff $100,000 in damages.

Finally, in a real "rock and a hard place" scenario, employers who falsely accuse an individual of engaging in sexual harassment of another employee may face a defamation claim unless the employer has conducted a thorough and deliberate investigation of the harassment charge in a confidential manner. Employers who move too quickly to discipline or discharge a manager accused of sexual harassment may be left with a plaintiff who wants to strike back at the employer by asserting that his reputation has been ruined by the sexual harassment allegations.

Employers must not arbitrarily discipline employees accused of harassment or fail to give hearing to the alleged harasser's side of the story simply because they are afraid of sexual harassment litigation. Instead, an employer must weigh all the facts, make credibility determinations as to who is telling the truth and give careful consideration as to the proper penalty in any particular case. If employers do investigate claims of sexual harassment in a thorough and deliberate manner, they are not likely to be vulnerable to defamation claims.

Defamatory Liability

See also:

Excerpted from Slam the Door on Employee Lawsuits: Keep Your Business Out of Court. Copyright 1998 by Paul M. Lusky. Published by arrangement with Career Press.
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