Legal Update - May - 2005
Beware of Defamation in the Workplace

Introduction

Illinois courts have recently increased the potential for employer liability for defamation in the workplace. On January 21, 2005, in Popko v. Continental Casualty Co., 823 N.E.2d 184 (1st Dist. 2005), the Illinois Appellate Court held that "intracorporate communications made during an ‘internal employee evaluation and disciplinary process' constitute publication sufficient to support a legally cognizable defamation claim against a corporate employer." In doing so, the court sustained a $300,000 verdict against the employer.

Many employers are likely to be surprised to learn that untrue statements made by an employee to a supervisor about another employee regarding employment matters may give rise to a claim for defamation against the employer. Generally, to prove a claim of defamation, an individual must establish that (1) the defendant made a false statement about him or her, (2) there was an unprivileged publication of the statement to a third party, and (3) the individual was damaged. A key issue in the workplace setting is whether there can be a publication of the false statement sufficient to satisfy the second element for a claim for defamation when employees of a company are communicating internally with one another with respect to employment matters such as performance reviews and evaluations. One might assume there is no publication of the allegedly defamatory statement when the communication is wholly within the company, rather than to a third party outside of the company. According to the Popko court, however, a corporate employer can be held liable for defamation as a result of such internal communications.

The Popko Case

Popko, a lawyer, had been a trial specialist for CNA for almost 16 years. Popko's discharge arose out of a performance review that his immediate supervisor conducted, during which Popko received a substantially lower evaluation than he ever had in the past. After the review, Popko's boss reported to his superior that Popko had used profanity during the review and had challenged the supervisor's authority – conduct that Popko denied. The superior agreed with the supervisor's recommendation to discharge Popko and wrote a memo to a company vice president, which set forth a "pattern of unacceptable conduct" by Popko. The memo stated that Popko had made derogatory comments about both Popko's supervisor and the superior to other company personnel and that Popko's conduct had "reached a breaking point" when he became belligerent and used profanity during the review. The vice president agreed with the recommendation to discharge Popko, and Popko's employment was terminated for poor conduct. Popko sued CNA, the supervisor and his superior claiming defamation based on the statements contained in the termination memo. A jury returned a verdict against all of the defendants and awarded punitive damages.

On appeal, the defendants argued that the internal communications were merely a corporation "talking to itself" rather than publications for defamation purposes. This has been referred to as the "nonpublication rule." The appellate court in the Popko case recognized that the nonpublication rule has been adopted by courts in some states but that other courts have rejected it, creating a split in authority. The Popko court concluded, however, that there is publication, even within a corporate environment, when the communication is made to any third party, including another employee. Therefore, the sending of the termination memo satisfied the element of publication. In so holding, the appellate court also rejected the defendants' contention that corporations will be inordinately exposed to liability for relying on reports of supervisors in making evaluations or disciplining an employee. The court was persuaded, instead, that companies will be adequately protected from unwarranted defamation liability by the availability of what is known as a "qualified privilege" for making statements concerning employees under certain circumstances.

A "qualified privilege" exists where an otherwise defamatory communication is not actionable because of the circumstances under which it is made. A qualified privilege is treated as a defense to a defamation claim. The defendant corporate employer bears the burden of proving that a qualified privilege exists, which a plaintiff employee may then overcome only by showing the privilege was "abused." The Popko court explained that certain circumstances may give a company an interest in publishing statements about an employee, such as where an employer is investigating the conduct of an employee and making communications concerning such an investigation. The qualified privileged is abused, and therefore lost, however, where there is an intent to injure an employee – such as where an employee knowingly spreads false derogatory information about another employee – or reckless disregard of the truth or an employee's rights. For example, courts have held that the qualified privilege is abused where the employer conducts an improper or incomplete investigation of the truth of the matter. In Popko, the appellate court determined that evidence showed that no investigation was made into the charges as to Popko's conduct.

Significantly, under the Popko decision, it is no defense that the employee's employment was at-will and therefore could be terminated for any reason. The defendants were not even permitted at trial to introduce evidence of Popko's at-will employment. The appellate court upheld the exclusion of this evidence, concluding that Popko's at-will employment was not relevant to whether he had been defamed.

Important Lessons

The Popko decision has potentially far-reaching implications for employers. In Illinois, and in many other states, employees have a right to access their personnel records. Employers must therefore anticipate that internal memos and other communications concerning an employee may be reviewed by employees – in many instances under circumstances where employees are unhappy with adverse employment decisions. Such employees may be all too quick to claim they have been defamed by communications with which they disagree. At the same time, a corporate employer has an interest in investigating, addressing and correcting employee performance issues and employee misconduct that occurs in the course of its business, which should give rise to a qualified privilege. It is critical, however, that employers take great care to preserve their qualified privilege. Some important lessons that can be drawn from Popko and other cases to help minimize employer exposure to liability for workplace defamation are that:

• Employers must make a fair and thorough investigation into the truth of allegations made by any employees about another employee, regardless of whether the statements are made in the context of an employee review or the disciplinary process. This means employers must obtain both sides of the story, even when dealing with an at-will employee.
• Employers should assume that all written internal communications regarding an employee will be subject to access and review by the employee. Internal memos, performance reviews and other written communications should avoid inflammatory language and accusations, hyperbole, superlatives, or conclusory and unsupported assertions. Facts should be plainly and accurately stated and be limited to those concerning the employee's work performance. The file should include any important comments of the employee disputing those facts.
• Employers must take special care that all such internal communications regarding an employee are made only to those of the company's management employees who have a "need to know" such communications, and that all company policies and procedures regarding investigations and employee discipline are followed.

Because publication for purposes of a defamation claim will be found in the employment context regardless of whether one employee is merely communicating with another employee about employment matters, every effort must be made to preserve the qualified privilege within the corporation.

FVLD publishes updates on legal issues and summaries of legal topics for its clients and friends solely for general informational purposes. They do not constitute legal advice, nor are they intended as a substitute for obtaining legal or other professional advice based upon specific factual circumstances or issues. We welcome comments or questions. If we can be of assistance, please call or write Damon Dunn, 312.701.6825, ddunn@fvldlaw.com, Glenn Rice, 312.701.6895, grice@fvldlaw.com, Rochelle Dyme, 312.701.6845, rdyme@fvldlaw.com, or consult with your regular FVLD contact.

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