Case Study: Defamation of Character and Wrongful Termination

Here we present a defamation of character lawsuit filed against a major restaurant chain. The victim alleges wrongful termination and libel.

This case example is for educational purposes only. It is based on actual events, although names have been changed to protect those involved. Any resemblance to real persons or entities is purely coincidental.

Our fictional character, Harvey Smith, an employee of a national restaurant chain, filed a lawsuit against the corporation after he was fired, contending a breach of contract and defamation of character.

The corporation fired Smith based on the performance evaluation conducted by one of its regional managers. In the evaluation, the regional manager had noted, among other issues, several allegations of sexual harassment made by restaurant employees against Smith.

Smith alleges he was wrongfully terminated in violation of his employment contract. He also felt the termination notices sent to him by the corporation constituted defamation, since they included the allegations of sexual harassment.

Harvey Smith retained an attorney and filed a suit asking for $200,000 in damages from the breach of contract and $3 million in damages from the defamation of character.

Statement of Facts

Harvey Smith first became an employee of Johns and Company, Ltd. while he was a senior in high school. At the time, he was an hourly worker. His duties mainly involved running the cash register and serving customers.

After graduating from high school, Smith was promoted to assistant manager. His duties changed, and although he still worked as a cashier and server, he was also in charge of scheduling, tabulating cash and credit card information for the day, and other managerial duties. He reported directly to the manager of the restaurant.

Two years later, the manager of the restaurant was promoted and transferred to the corporate headquarters. Smith was then promoted to manager.

Things seemed to go well for the first month or two. But beginning in the third month, some employees noticed Smith making obscene jokes in front of female employees. Soon after, his remarks escalated into direct statements to some of the female employees commenting on their anatomy or their private lives.

Those remarks further escalated into instances in which Smith asked some female employees to stay after the restaurant closed, purportedly to discuss their salary raises. Most of those discussions, though, turned out to be requests for sexual favors.

Several employees began sending emails to corporate complaining of Smith. They said he made them feel uncomfortable and considered his actions and statements to be sexual harassment. The restaurant also began to experience a higher than average turnover rate, with a significantly higher number of female workers resigning within the last two months.

Johns and Company contacted regional manager Cynthia Garcia and sent her to the restaurant to investigate the allegations and to discuss other issues related to the restaurant’s performance. When they met, Smith denied the allegations of sexual harassment and blamed the restaurant’s lagging performance on the economy.

Three days later, Smith’s employment was terminated. He received his termination notice via telephone from the corporate Human Resources director.

The notice was followed by an email and certified letter. All three notices made it clear Smith’s termination was based upon several issues. One of them was the accusations of his sexual harassment of female employees.

Lawsuit for Defamation and Breach of Contract

Smith hired a local attorney who filed a lawsuit against Johns and Company on Smith’s behalf. The lawsuit alleged breach of his employment contract and defamation of his character based upon libel.

Smith contended he was wrongfully terminated based solely upon insinuation and speculation.

He further contended the termination notices he received constituted libel because other employees saw the notices to him, such as secretaries and others who were involved in the creation of the termination notices.

Smith sued for damages, seeking $200,000 for breach of contract and $3 million for defamation of his character.

Johns and Company responded to each of Smith’s claims. They contended they did not breach the contract.

Smith’s termination, they said, was based wholly upon the terms of the employment contract Smith signed when he was promoted to manager. A clause in that contract allowed corporate termination power based upon what they considered to be “actions of any employee which constituted acts of moral turpitude.”

They also contended that they had not defamed Smith’s character. They cited federal court rulings that consistently held truth as an absolute defense. In other words, it’s not defamation if what you say is true.

Corporate was quick to point out that the termination letter and email did not state Corporate believed the harassment allegations of the employees to be true.

Instead, Corporate stated his termination was based upon their receipt of complaints of sexual harassment. Corporate contended they had no way of knowing if the allegations were true or not. They also subtly implied they didn’t care. What they cared about were the allegations themselves, which accused Smith of sexual harassment.

In that regard, corporate claimed they did not defame Smith by communicating to him the allegations made by some of the female employees. Corporate suggested Smith’s defamation case might better be tried against those who accused him of sexual harassment, and not Corporate.

Final Outcome of the Lawsuit

The Court listened to the arguments from the Plaintiff Smith and the Defendant Johns and Company. The workers who had complained of sexual harassment also testified.

After considering everything, the Court ruled in favor of Johns and Company.

The Court determined that:

  • The corporation did not violate Smith’s contract when they fired him.
  • The termination notices were not libel or defamatory, because they only stated that accusations of sexual harassment had been made against Smith, which is true.

The Court’s published opinion said, in part:

“The evidence received by this Court included the original contract of employment between the Plaintiff and the Defendant. We find the terms related to employee termination based upon ‘actions of moral turpitude ‘ to be marginally ambiguous. The Court is charged with deciding if that ambiguity should be interpreted in favor of the Plaintiff or the Defendant.

We listened to the testimony of those employees who testified under oath about the nature of the allegations. Those allegations included statements by the Plaintiff to his employees, which were crude and vulgar, leaving little to be interpreted.

Forcing a company to have to specifically define in their employee contracts the exact details of the type of sexual harassment that might subject an employee to termination would be wholly against public policy.

Many years earlier, U.S. Supreme Court Justice Potter Stewart, when commenting on pornography, said it best in Jacobellis v. Ohio, 1964. He said,  “I know it when I see it.” We find Justice Stewart’s comments to apply here.

For the Defendant to have to specifically state in its employment contracts each specific word or phrase which constitutes sexual harassment would be an unfair burden. We just know it when we hear it.

As to the Plaintiff’s further allegations of defamation, we again must find for the Defendant. The contents of the notices to the Plaintiff were merely recitations of the emails and letters the Defendant received from its employees. The Defendant made no comments on the veracity of the statements; rather, the Defendant merely relayed to the Plaintiff that which was communicated to them by others.

We, therefore, find for the Defendant on both causes of action.”

Important Points About Defamation of Character

  • Defamation of character must be based upon untrue statements made by another. If those same statements are truthful, there is no basis for a lawsuit.
  • If the defamatory statement is made verbally, it is considered slander. If the defamatory statement is in written form, it is considered libel.
  • There must be proof of “harm” to bring a defamation case, such as job loss, bad publicity, or damage to family or community relations.
  • Statements made in Court or other privileged proceedings may not qualify as defamation, even if the statements aren’t true.

 

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