Defamation & Employee Termination: A $27 Million Minefield

There’s a reason why corporate HR is tight-lipped about former employees. Calling to check a potential new hire’s reference? Good luck getting more than dates of employment. The reason: Defamation. There are a growing number of defamation claims tied to employee departures and particularly to employee terminations. And the damages can be huge. Take a recent case from Illinois: Allstate Insurance fired four employees and accused them of violating the Company’s conflict of interest policy. Allstate repeated that allegation in a memo the Company sent to more than 350 of their former co-workers and in an SEC filing. The memo contained enough details to identify the individuals at issue. They sued in Illinois Federal Court. And they won a jury verdict of $27.1 million. That’s serious risk. Let me break this down.

As many folks know, our firm focuses on unfair competition cases. That’s most of the work we do. But I have 30,000+ followers on LinkedIn, blogs, websites, a YouTube channel and more. That generates hundreds of leads every month. So every month, I get at least a few dozen inquires pertaining to an alleged wrongful termination. Most people throw that term around with no idea what it means. Same thing with discrimination or hostile work environment. The reality: Lots of people who get fired are just ticked off and looking for a payday. We reject 99% of these types of cases.

But every once in a while, somebody comes along who has a truly compelling, legally-actionable case of, e.g., discrimination, retaliation, wrongful termination, etc. I rarely file these cases. In most instances, the damages aren’t high enough to justify filing a lawsuit and litigating through summary judgment. Consider this: Why would our team invest 15+ months, $400,000 worth of attorney time and $20,000 in expenses to litigate a case where (1) we take all the risk associated with a pure contingency fee and (2) the most we realistically stand to recover is $300,000 or $400,000 in fees. Answer: I wouldn’t.

Title VII and ADEA Claims: Limited Value

Here’s the problem: Most of these claims (Title VII, ADEA, etc.) have limited value. First, your actual damages are calculated as back-pay and front pay. If the plaintiff gets a new job, that mitigates those damages. Second, with respect to compensatory or punitive damages, the plaintiff is capped at $300,000. Third, the legal framework governing discrimination cases creates fairly difficult burdens for the plaintiff. Lots of discrimination cases that are plausible get thrown out at summary judgment. All the defendant has to do is give a legitimate, non-discriminatory reason for the termination. And that’s it. Game over.

Given the foregoing factors, I rarely file discrimination cases. And in fact, the best discrimination cases (or retaliation or whistleblower) are so shocking, terrible and salacious that they never get filed. I have settled numerous discrimination cases for six figures without filing anything. Just a demand letter. Sure, there’s value there re avoiding litigation exposure. But the real value in a terrible discrimination case is the threat of damage to a company’s brand. That’s why we never file the big discrimination cases. We just settle them. But defamation? Now that’s a very different story.

Defamation Cases Arising from Termination

There are numerous advantages to defamation claims vs., e.g., Title VII/ADEA claims. Granted, I consider this from the perspective of lawyer who can pick and choose between 200+ potential plaintiff-side cases a month. So I can be incredibly selective and focus on only those cases that check off every box I want. I can prioritize these types of defamation claims.

But consider this: Many discrimination or wrongful termination claims have facts that could support a defamation claim. The company fires an employee and says it’s for performance, misconduct, violating company policy, or a conflict of interest. The employee says it was because of age, gender, race or whistleblowing. We’ve got a ballgame. Accusing someone of violating company policy or engaging in a conflict of interest is potentially defamatory. For instance: An employee sued Wells Fargo over saying she had been “fired for cause” and “not following procedures.” A federal court in Virginia refused to dismiss the claim.

Here’s why these claims are so powerful: First, there is not a restrictive legal framework (e.g. McDonnell Douglas) preventing these cases from getting past summary judgment. It’s a pure factual dispute. Conservative legislators have done their best to gut Title VII and the ADEA and minimize the available damages. And I understand that to an extent: There are lots of bogus discrimination claims out there. It seems like everybody who loses their job thinks they were wrongfully terminated. And that’s bullshit. Look, I’m not just a lawyer. I’m an employer. I own a multi-million dollar business. There are great employees. There are terrible employees. It’s a fact. Sometimes you have to fire people. And from a policy standpoint, we can’t allow every single employee who claims they were wrongfully terminated to have a jury trial.

Damages are another issue. If a company engages in truly egregious discrimination, they should be punished. And the cap should be higher than $300,000 in compensatory/punitive damages. But for defamation claims? There is no damages cap. That’s the point. In fact, if you get into defamation per se territory, certain damages are presumed. This is why some of the biggest jury awards in the employment law arena come from defamation/termination cases.

It should go without saying that truth is an absolute defense to a defamation claim. So if an employee did anything dirty or unethical, they probably don’t have a case. But if falsely alleged, the following types of statements or allegations potentially give rise to significant defamation claims: (1) The employee was fired for criminal wrongdoing. (2) The employee engaged in criminal conduct. (3) The employee was fired for stealing. (4) The employee was fired for lying. (5) The employee was fired for conflicts of interest. (6) The employee was fired for unethical conduct. Give me somebody with a sterling reputation and those sorts of allegations? I’ll take that action all day long.

Jonathan Pollard is an attorney, litigation entrepreneur, writer, and consultant based in Fort Lauderdale, Florida. For more information, call 954-332-2380.