Have you ever wondered why most Human Resources Departments are adamant in their keeping to a bare minimum the information they give out concerning a former employee’s reference checks? The information given is usually limited to dates of employment and title of positions held. Salary and compensation information is rarely and only reluctantly given when there is a written authorization and release signed by the ex-employee. The HR people’s reluctance is for good reason: avoidance of defamation lawsuits.

YOU SAID WHAT?

A couple of lawsuits involving defamation claims by executives are good reminders for employers that the involuntary or voluntary departure of executives must be done in a way that does not injure the reputation of the executive by anything that the employer says or writes.

In one recent case, a managing director of a consulting firm telephoned a client that the consulting firm’s ex-employee who was about to do work for the client was in a lawsuit with the consulting firm because the ex-employee “violated her non-compete agreement.” An Illinois appellate court reversed the lower court’s dismissal of the ex-employee’s claims of defamation and held that “[t]he alleged defamatory statement was alleged with particularity, was not substantially true as a matter of law, was not reasonably subject to an innocent construction, and was not subject to the fair report privilege.” Huron Consulting Services LLC v. Murtha, et al., Appellate Court of Illinois (1st Judicial District 2012). The case is still pending so we do not know whether the ex-employee will ultimately prevail on the merits.

In another 2011 Illinois case, an executive did prevail in his defamation suit against an individual member of his former company’s supervisory board and against his former company. In that case, the board member walked into the president’s office and fired him. The fired executive called in a human resources employee as a witness and asked the firing board member to state his reasons for firing the president. The firing board member replied “for cause” and further answered “yes” to the president’s query: “You are telling me that you are firing me for gross insubordination, for gross misconduct, for gross negligence and willful violation of the law?”. Leyshon v. Diel Controls North America, Inc. et al., Appellate Court of Illinois (1st Judicial District 2011). The Leyshon court stated, “It was a reasonable inference from the evidence at trial that plaintiff’s termination for cause had become public knowledge and prevented the plaintiff from obtaining comparable employment.” This appellate court upheld a jury award of $2,000,000 in compensatory damages and $6,000,000 in punitive damages. Ouch!

WHAT IS DEFAMATION?

A statement becomes defamatory when it injures a person’s reputation. The elements of a defamation claim are 1) the statement is false, 2) the statement is made in an unprivileged publication to a third party, and 3) the publication damages the plaintiff.

Where a statement is defamatory per se, a plaintiff need not plead or prove damages to plaintiff’s injury to his reputation. As the court in the Huron Consulting case noted, Illinois law has five categories of defamatory per se statements: (1) those imputing the commission of a crime; (2) those imputing infection with a communicable disease; (3) those imputing an inability to perform or want of ethics in the discharge of duties of office or employment; (4) those that prejudice a party’s trade, profession, or business or impute lack of ability in the party’s trade, profession, or business; and (5) those imputing fornication or adultery.

Accordingly, making statements about an employee’s inability to perform, lack of integrity, or lack of ability in his trade, profession, or business without substantial evidence of its truth can land an employer and its management in very hot water.

If an employer is going to fire someone “for cause,” the employer better well have good factual documentation establishing cause. As the Leyshon case discussed above shows, an employer would be foolish to use “for cause” as a subterfuge to avoid severance payments required under an employment contract. Unless the executive’s conduct is so egregious that paying severance is not a public relations option, sometimes, it is better not to state a reason and simply pay.

If an employer has a non-compete claim, a non-solicitation claim, and/or a breach of confidentiality claim against an employee, it is best to let the lawsuit speak for itself. If the employer feels compelled to say anything to third parties, then it should be simply that there is a lawsuit alleging these claims that is of public record. To state that an alleged violation is “fact” leaves the employer vulnerable to a lawsuit and possible liability. The best employer statement to make is “No comment.”

TAKE AWAYS

For the employer, the lesson is that any departure of an employee must be tightly managed so that no one in the company makes a disparaging statement about the employee that could result in a defamation suit. An employment attorney and a seasoned HR professional should manage the mechanics of the employee’s exit and any existing issues like possible violations of restrictive covenants.

For the departing executive, the lesson is that the executive must remind the employer that the executive does not expect and will not tolerate the employer making untrue disparaging statements. Sometimes a communication from the executive’s attorney is needed.