BREAKING UP IS HARD TO DO--
The Real World Risks of Terminating At-Will Employees
By definition, an “at will” employee is one who can be terminated by an employer without cause or reason. But as experienced HR professionals, managers and executives already know, the growing list of exceptions to this doctrine make at-will employee terminations anything but risk-free. As much as a confident “You’re fired!” makes for great TV, things aren’t nearly so simple in the real world.
There is a plethora of available employment law articles that instructs employers on the well-known liability hazards in this area, and how to deal with them. For instance, at-will employees often claim that they were unlawfully terminated based on their race, age, gender or other protected characteristic; or that they were retaliated against for exercising certain guaranteed rights, like promoting unionization; or that they were terminated in violation of certain “public policy” considerations as defined by various courts; or that their termination violated an applicable state statute.
In these kinds of situations, documentation is the key: an employer needs to be able to prove that its decision to terminate was based on, for instance, incompetence or violations of work rules, and not on some unlawful consideration. Avoiding Lawsuits has dealt with this necessity in prior issues – for instance, see our January 2004, June 2003, and April 2002 issues.
But as so often happens in the real world of employer-employee relations, just when you thought you had your arms around the risks raised by at-will employee terminations, there emerges an array of often ignored, but potentially devastating issues that present even greater dangers.
Here’s a sampling of some of the issues you ought to be thinking about in order to stay ahead of this curve.
Protecting Confidential Information in a Digital World
In the “old days,” an employee bent on furtively stealing voluminous customer files, the results of a research project, engineering plans, and so on would have to find a way to locate the materials (which could be in a locked file cabinet or private office), copy them without being noticed, and get them out of the office. The logistics could be daunting.
In recent years, however, the theft of trade secrets has become much easier, thanks to the prevalence of office computer networks – an employee need only locate the materials on the network and email the data or burn a CD, all of which can be done, to the tune of tens of thousands of pages of information, while casually sitting at a desk during the normal work day. Consider: according to a University of California at Berkley study, 92% of all information created in 2002 was stored magnetically, mainly on hard drives. Some companies password protect or otherwise secure sensitive materials, but as often as not, these systems are easily and frequently circumvented.
Disgruntled employees who believe they are on the ropes and subject to termination are the most frequent and obvious risks – they collect data and take it with them when they go (or, often, even before they go), hoping to use it themselves or sell it to a competitor. For instance, in recent years the following criminal prosecutions – among many, many others -- have come to light. One can only imagine how much additional trade secret theft remains undiscovered or resolved confidentially:
- Two former Boeing managers were charged in a plot to steal product development secrets from Lockheed Martin;
- A disgruntled Cisco employee logged in at a software engineer’s workstation, found valuable information pertaining to released products and ongoing product design, burned a number of CD’s, joined a competitor, and downloaded the information on the competitor’s computer system;
- An ex-employee of Lightwave Microsystems collected computer back-up tapes and attempted to sell them to a competitor;
- A ex-employee of Brookwood Companies, a textile company, was caught with proprietary pricing materials;
- An ex-employee of SRG, an employee placement firm, took valuable information matching employees with prospective employers;
- An ex-employee of Semi-Supply, Inc. took a database of valuable and confidential customer and order information;
- An engineer working for a Gillette contractor downloaded 600 megabytes of plans for new production equipment and tried to sell it.
So what do you do? The topic is, obviously, exceedingly complex and beyond the scope of this article, but here are some basics.
First, take advantage of the laws that exist. Congress passed the Economic Espionage Act of 1996, and various states have enacted their own trade secret protection laws as well. Most of these statutes define the information that fall within their ambits of protection as virtually anything, not already known or readily-ascertainable by the general public, from which an economic advantage can be gained, so long as the owner of the information has taken reasonable measures to keep the information secret. In other words, you waive your right to the law’s protections unless you take reasonable steps to protect yourself. For instance:
- Use the technology that suits the size and infrastructure of your company. Get beyond mere password protection – technologies have progressed to the point where even very small companies can implement firewalls, secure servers and other systems that make it quite difficult for all but the most technologically sophisticated to penetrate;
- Explore the potential to use computer monitoring software that allows you to track individual computer usage and network access. To create a deterrent effect, let employees know – before, during and after their employment (i.e., in an exit interview) -- that you are monitoring what they are doing. Consider including the monitoring policy as a screen saver so that as your employees log on they will either be reminded of the policy or be required to agree to the policy;
- Related to the above, make certain that you have in place the appropriate policies and procedures so that employees are aware that they should have no expectation of privacy as it pertains to their computer usage;
- Require employees to sign the right kinds of nondisclosure and confidentiality agreements;
- Make sure you do all that is required to limit public dissemination of anything you may at some time seek to protect as a “trade secret.”
Defamation Risk #1:
How Do You Explain the Termination To Co-Workers?
Employee morale can suffer when a fellow employee is terminated, particularly if similarly-situated employees believe there was no basis for the termination. Especially when an at-will employee is terminated for good reason, every employer wants to let other employees know the real story in the effort to quell suspicion and dissent.
Here is the way that scenario often plays out. Let’s suppose that you – an executive VP in a manufacturing firm – are told by one of your managers, Joe, that an employee, Harry, failed to complete a crucial market analysis on time. Joe says he needs to send a message to the rest of Harry’s group – deadlines must be met, and the company won’t stand for the kind of lackadaisical approach Harry brought to the table. He asks for authority to fire Harry. You want to support your managers, and you give Joe the OK. Joe terminates Harry, and sends an email to the group:
Some of you asked why Harry was terminated. Harry’s termination was made for good cause – Harry failed to complete the market analysis on time without any justification. The company cannot afford to retain employees who do not take the company’s needs seriously. Please be guided accordingly.
A month later, you are served with a defamation lawsuit. It turns out that Joe had forgotten that he extended the deadline, and Harry can prove it. Or far from failing to take his job seriously, Harry has a serious illness, Joe knew about it, but failed to accommodate Harry and violated the ADA in the process. Thanks to the wonders of computer technology, the distribution of Joe's email expanded exponentially, and Harry's reputation has been decimated to the point where he cannot get another job, and his kids are teased in school about their lazy, incompetent father. Harry wants punitive damages.
This is a difficult situation – it would be easiest to say nothing, but the company could suffer if the rumor mill were allowed to keep churning without the company putting forth its version of the facts.
The solution is twofold. First, always, always, always make sure that you can prove whatever you choose to say. That means doing much more than simply asking Joe if his statements are true. In this case, you would have been well served to, at the very least, meet with Harry, explain the seriousness of the offense, determine if there were an excuse, and base a decision on the results of that inquiry. It would not hurt to seek advice of counsel along the way.
Second, even if you conclude that termination is justified, say as little as possible while still making your point, and justify the lack of a detailed explanation out of a concern for Harry’s privacy:
This is to advise you that as of this date, Harry is no longer employed by the Company. The Company made this decision, after investigation, based on our belief that it was in the best interests of the Company to terminate Harry’s employment at this time. As a matter of policy and in order to protect Harry’s privacy, the Company does not believe it is appropriate to discuss further details that pertain to this decision.
This gets the message out, but limits the risk – so long as your personnel are well trained in the art of dealing with the employees who will inevitably ask questions seeking more details. Employee defamation suits are becoming much more common, juries are becoming more sympathetic given the tight job market, and they need to be dealt with as a real risk with a high damage potential.
Defamation Risk #2:
How to You Respond to a Request for a Reference?
What should you do when a prospective employer asks for a reference on a terminated (or any other former) employee? If avoiding lawsuits and liabilities is your priority, our recommendation is simple: confirm dates of employment and positions held, release compensation information only if provided with a signed release, and say and disclose nothing more.
From a risk management perspective, there is no upside, and lots of downside, to the violation of this rule. If, believing that you are being completely truthful, you disclose that the employee was a poor performer, you again open the door to a defamation claim. Some states have passed statutes in an effort to protect employers against such liabilities, but they are far from foolproof.
And the risks extend beyond the defamation sphere. For instance, if you mention that the employee had a bad back or had been on sick leave, you run the risk of violating the prohibition of the ADA (and other laws) against disclosing medical information.
Although a bit far fetched, there have even been cases in which a positive reference led to a lawsuit. Suppose you have an employee with violent propensities and, happy to get him out the door, you give him a positive reference. If he harms someone at his new place of employment, you might be on the hook -- once you start telling what you know, you can be liable for misleading a prospective employer unless you tell the whole story.
Caveat #1: This may be an exception to the general “say nothing” rule. Depending on where you conduct business, you could be liable for not disclosing the potential of an employee to cause harm to others. Check with counsel.
Caveat #2: To avoid the argument that, by not giving a reference, you singled someone out for special adverse treatment, as well as the argument that your failure to provide the reference implied to a prospective employer that the employee in question was unfit, establish a written policy regarding references, and train your employees to live by it.
Caveat #3: We recognize that many HR professionals seek to encourage the free flow of employee reference information, and will provide substantive references (and expect them in return). That’s OK – so long as management understands the risks, and has made an educated business judgment that the benefits outweigh them. On a selected basis among HR professionals who trust each other, sometimes the risks are worth it.
Can You Withhold Wages from an Employee
Who Caused You Damage?
Suppose you terminate an employee who blows off a crucial customer meeting and causes you to lose a lucrative sale, or stupidly deletes computer data that takes thousands of dollars to rebuild? Thereafter, you learn that you owe the employee for accrued vacation time and expense reimbursements. Do you have to pay it, or can you charge the employee for the damage done to your company?
Check with counsel. Many states have “wage payment” laws (with “wages” being very broadly defined) that severely restrict the right of an employer to withhold sums the employer claims to be due (as opposed to paying all back wages, and suing for damages). These laws usually include severe penalty provisions, such as counsel fee entitlements for the employee, fines, treble or other enhanced damages, and so on.
What About Reading Personal Mail Left On An Office Computer?
Companies have a bona fide interest in reviewing a terminated employee’s emails. You may want to determine if the employee was disclosing information to competitors, or soliciting other employees, and so on. You may also need to reconstruct what the employee had accomplished in respect to his or her job responsibilities so that you can determine whether any damage control is required.
Most courts – again, jurisdictions do differ, so check with counsel – allow companies to review employee email on an email system supplied by the company. It helps a great deal if, through appropriate policy and procedure materials, the company has notified its employees that it may choose to exercise this right. This will effectively thwart an employee’s argument that his or her privacy was invaded; the company can argue that the employee was told in advance to expect no privacy.
But what about personal, non-business email? There are many cases, often labeled as “invasion of privacy” claims, that say that an employer can be liable for reading, copying or publicizing employee email (or other communications, for that matter) that are obviously personal. And there are other complications if the email relates to medical or related issues.
Where do you draw the line? Understanding that there is a line to be drawn is the first and most important part of this battle. Beyond that, there is no hard and fast rule. There has to be a bona fide business reason for an employer to read what would appear to be purely personal emails, and if there is not, stay away from them. Otherwise, consult counsel to determine if the risks will outweigh the benefits.
Caveat: Remember that you have the right to prohibit employees from using your email system for personal purposes. This won’t give you the right to read personal emails sent or received in violation of this policy, but it may limit the frequency of the instances in which you have to deal with this issue.
What Do You Do When the Terminated Employee
Harasses and Defames You?
The internet has given terminated employees who seek vengeance on their former employer and/or the manager who fired them an audience, potentially in the tens of millions, to whom they can vent their spleens.
For instance, there are cases in which a terminated employee has given the email addresses of company executives to porn sites and other spam providers in an effort to embarrass them and flood their email accounts; posted the top management positions at his former company as job openings on internet job placement sites to cause confusion and embarrassment; and made false, defamatory postings on numerous websites (and to stock analysts, customers, etc.).
In a noteworthy California case, a fired employee and his girlfriend posted derogatory messages on internet bulletin boards, defaming their former employer, labeling the manager who did the firing and others as chronic liars, mentally ill, incompetent, on hallucinogenic drugs, and so on. The company sued, alleging, among other things, defamation and invasion of privacy, and it sought an injunction. That further emboldened the ex-employee, resulting in 13,000 additional messages email messages, the creation of a website dedicated to furthering the attacks, and a vow that he would keep it up until he died.
Ultimately, the case went to trial and, after six weeks in the courtroom, the company won substantial compensatory and punitive damages, as well as an injunction. But the ex-employee appealed, and the appeals court substantially modified the injunction – there are very significant First Amendment prohibitions on restraining free speech, even when it is defamatory.
The upshot was that the company obtained a money judgment it will most likely be unable to collect, a ton of adverse trial publicity – and the defamatory postings and harassment continued anyway.
Is there a solution to this kind of conduct? Candidly, there are few remedies other than seeking to minimize the emotion inherent in an employee termination at the outset.
In our experience, three factors provoke the most vengeful responses: surprise; perceived arbitrariness and unfairness; and employer inconsistency. You can often limit the emotional backlash through a progressive disciplinary system, tied to meaningful employee evaluations, which gives employees fair warning and a chance to improve, and a structured grievance process which provides disgruntled employees with a controlled forum for venting… another topic for a future issue of Avoiding Lawsuits.
As always, let us know if we can help.
WHAT DO YOU THINK?
Employers can minimize some of the risks of employee terminations and departures through employment agreements with their employees. For instance, depending on the jurisdiction, covenants not to compete can restrict an employee’s right to work for (and take information to) a competitor. Contract provisions precluding employees from taking or using information – even if the information is not deemed worthy of statutory protection – can be immensely helpful. Agreements requiring arbitration can be used to limit runaway jury verdicts in many cases.
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Powell, Trachtman, Logan, Carrle & Lombardo, P.C. is a full service law firm with offices in suburban Philadelphia, PA, Harrisburg, PA and Cherry Hill, NJ. Powell Trachtman represents a variety of commercial enterprises, entrepreneurs and business executives in respect to their litigation, litigation avoidance planning, business formation, business transactions, estate and tax planning, and other needs. We are also approved defense counsel for numerous insurance carriers in matters pertaining to professional malpractice, products liability, employment practices, directors and officers liability, and many other fields. For more information, contact us at info@powelltrachtman.com and visit our website at www.powelltrachtman.com.
