Posts Tagged ‘Disparagement’

SEVERANCE PAYMENT SLIP AND FALL

January 23, 2017

BY G. A. FINCH

 

I was fascinated with a 22 December 2016 Crain’s Chicago article “Feud explodes at one of the city’s most connected PR firms” by columnist Greg Hinz.  The story intersected two worlds in which I practice law and work: executive employment and governmental affairs.  Although not personally acquainted with the antagonists, Leslie M. Fox and Guy Chipparoni, from my own circles, I have some familiarity with their respective body of work and reputations.

Let’s set the stage. In September, 2014, Greg Hinz pens a short Crain’s piece , writing “Two of the more colorful figures in Chicago’s world of media and politics are getting hitched – professionally, that is…. Neither Mr. Chipparoni nor Ms. Fox is a shrinking-violet type.  But both are capable of doing first class work.  We’ll see how they do together.” The hint of skepticism of Mr. Hinz was prescient.Boxing_gloves

Fox had helped organize and raise funds for Chicago’s hosting the 1996 Democratic National Convention and 1994 World Cup Games (the latter event yours truly had a bit part at the creation).  Chipparoni had been a flack for Illinois Governor Jim Edgar and founded his own successful public relations firm, Res Publica Group, of which he later asked Fox to become a part.

In December 2016, Fox filed a law suit against Chipparoni personally and his firm alleging that Chipparoni breached an employment agreement by not providing her severance benefits after she invoked a “Good Reason” termination provision  “because during her employment there was a consistent, persistent and continuous diminution of Fox’s contractual duties, responsibilities, powers and authorities which … were to be those customarily associated with the position of Executive Vice-President.”Bossth

Two of the most serious allegations were A) that Chipparoni diminished her ability to prevent Chipparoni from appropriating opportunities and assets belonging to the firm and B) that Chipparoni treated the firm as his alter ego and did not maintain the firm as a separate legal entity.  These allegations lay the foundation for a claim of personal liability of Chipparoni. Ouch!

Fox also has a more common variety breach of employment contract allegation that Chipparoni disparaged her to others.  We do not know from the complaint what alleged disparaging remarks were made.  We can assume that Chipparoni will file an answer to Fox’s complaint denying making disparaging statements or otherwise breaching the contract and file affirmative defenses to her claims.

In my executive employment blog, I have written that employers usually underestimate the destructive power that an angry, committed terminated employee can have on the morale, reputation, and resources of their organizations.  What many employers fail to understand in their not being reasonable in their severance offer is that the terminated, aggrieved employee may present a sympathetic image to a judge or arbitrator or the court of public opinion.  Moreover, the peeved employee may dig up bones of alleged legal and regulatory liability of which the organization’s higher ups may not even be aware.   The organization may have unintentionally birthed a whistle-blower.   A boss may have not ever thought of liability for the firm, let alone, his own personal liability

An employer’s having and abiding by a non-disparagement employment contract provision should be basic practice.  From the employer side, the employer does not want a disgruntled former executive trashing the company thereby diminishing the brand, reputation, and good will of the company.  The executive certainly does not want the executive’s ability to work effectively at the executive’s job to be made more difficult or to find new employment to be precluded by negative comments being made about the executive during the executive’s employment or after the executive’s employment.  In the Res Publica case, Chipparoni’s alleged disparaging comments has produced a claim of breach of contract.  A further take away for employers is that an employer must not say or write anything that injures the reputation of the executive that could form the elements of a defamation claim.

As I have blogged previously, severance payments are pragmatic.  Employers ought to consider providing for severance payment and a neutral letter-of-reference in separation agreements where there is no employee misconduct. These provisions often generate goodwill from a departing employee, thereby reducing lawsuits, and the provisions can be used to bind an employee to confidentiality, non-disparagement, and non-compete obligations as well as release most claims against the employer.  Severance payments demonstrate humaneness and compassion on the part of the employer.

courthouse

Employment lawsuits are expensive and generate bad public relations for a company. As long as the severance compensation is not excessive, it really is a no-brainer in terms of a cost-benefit trade-off for an employer.

Fox wisely obtained an attorney to review and negotiate her employment contract that sets the terms of her separation from Res Publica.  Among other things, it enables her to fire her employer when good reason is shown, namely, the diminishment of her executive responsibilities and receive a severance payment; it provides for non-disparagement of her to protect her reputation; and it sets out clearly the basis of her compensation. It remains to be seen whether she can prove her breach of contract claim, but protracted litigation creates bad optics for Res Publica and Mr. Chipparoni even if they prevail in the lawsuit.  After all, public relations and governmental relations are about achieving positive outcomes or damage control.  Neither positive outcome nor damage control has occurred here.  In my law practice I have seen that this kind of dispute probably will settle  sooner rather than later.

 

DEFAMATION

March 10, 2012

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.