M. Defamation and Related Concerns

A defamatory statement arises when a communication (either oral or in writing) is made about someone which tends to so harm that person's reputation as to lower him or her in the estimation of the community or to deter others from associating or dealing with him/her. Defamatory state- ments in written form constitute libel; defamatory statements in oral form constitute slander. Defamation occurs when the statement is false, communicated to a third party, and no special privilege exists. Common on-the-job problems occurring in this area typically arise when employees inadvertently make disparaging remarks about competitors or when a company talks poorly about one of its employees.

Business Defamation

Often, during a sales presentation, a well-meaning salesperson will inadvertently make disparaging remarks about the competition. This type of sales tactic can leave your company wide open for a business defamation lawsuit. Just as individuals can sue each other for slanderous or libelous statements, a competing business can take your company to court for making statements damaging to its business reputation. Salespeople frequently compare the qualities and characteristics of their product or service with a competitor's during the sales presentation. Such comparisons are often inaccurate or misleading and sometimes tend to slander a company's business reputation and distort or disparage its products. Very definite rules govern what an employee can and cannot say about the competition. It is far better to restrain your staff and even lose an account or two than risk the much higher costs of having to defend your company in court. For example, suppose an employee has a plan for winning some of the competition's business and circulates among a number of customers a letter that, by-the-way, points out failures in the competition's products and services. This is fertile ground for a business defamation lawsuit.

Economic injuries, including proof of lost contracts, employment, and sales have been redressed by legal actions for product disparagement, unfair competition, and trade defamation. In addition to private lawsuits, the Federal Trade Commission is empowered to impose a cease and desist order or injunction on companies that engage in unfair or deceptive trade practices through their employees. But that's not all. When a statement disparages the quality of a person's product and, at the same time, implies that the person is dishonest, fraudulent, or incompetent (thus affecting the individual's personal reputation), a private lawsuit for defamation may also be brought.

The following forms of wrongs fall under the heading of business defamation:

Business Slander: This arises when an unfair and untrue oral statement is made about a competitor. The statement becomes actionable when it is communicated to a third party and can be interpreted as either damaging the competitor's business reputation or the personal reputation of an individual in that business. Such a statement might call into question the honesty, skill, fitness, ethical standards, or financial capacity of the company or an employee.

Business Libel: This is the written form (i.e., advertising, product brochures, and letters sent to customers). Here, too, it is possible to damage reputations through statements that reflect on the conduct, management, or financial condition of the business.

Product Disparagement: This occurs when false or deceptive comparisons or distorted claims are made concerning a competitor's product, services, or property.

Unfair Competition: Injury to a business may also result from state- ments about your own product or service rather than a competitor's. Examples are false advertising of one's product, misrepresenting the qualities or characteristics of the product, or engaging in a related unfair or deceptive trade practice (regulated under the Federal Trade Commission Act). Unfair competition can arise in a variety of forms, including unlawful statements contained in newspaper or periodical advertisements, radio or TV commercials, direct mail pieces, adver- tising or sales brochures, catalogs, price lists, and "sales talk."

Counsel Comment #85: Whether slanderous sales call comments are malicious or innocent in intent, they are illegal. It pays to let your employees know the rules about what they can and cannot say about a competitor and a competitor's product. The following recommendations can help protect your company:

1. Review your correspondence and promotional material before distribution. This will reduce the possibility that defamatory material is inadvertently distributed. Companies often commit trade libel through their employees by disseminating false information that staff then pass along, intentionally or not, to their customers. It is a good idea for the sales manager to review all sales material before distri- bution by your employees. If any questions arise regarding accuracy, immediately consult with the appropriate depart- ment, such as advertising or legal.
2. Instruct employees to avoid repeating unconfirmed trade gossip, particularly about the financial condition of a competitor (i.e., that the competitor has discontinued its operations, is financially unstable or is going bankrupt). The law treats these statements as defamatory per se which means that a company or defamed individual does not have to prove actual damages to successfully recover a verdict. Money can be recovered against your company simply because the statement is untrue.
3. Tell employees to avoid statements that may be interpreted as impairing the reputation of a business or individual (i.e., that a principal in the competitor's business is incompetent, of poor moral character, unreliable or dishonest).
4. Insure that the staff avoids making unfair or inaccurate comparisons about a competitor's product. The law generally states that the mere "puffing" (sales talk) or offering of an opinion about your product or service which claims superiority over a competitor's product is not a disparagement as long as the comparison attempts primarily to enhance the quality of your product without being unfairly critical of the competitor's. But when you make a statement or pass along untrue or misleading information which influences a person not to buy, that's unlawful.
5. Advise employees of their obligation not to make slanderous statements or defamatory writings and conduct periodic training sessions to educate them in this area. In certain cases, companies were deemed not to be liable for the slanderous utterances of an employee acting within the scope of his/her employment unless it affirmatively appears that the employee was expressly directed or authorized to slander the plaintiff.

With respect to defamation committed in the workplace, courts have recognized valid causes of action by plaintiffs who suffered damage to their reputations from statements in discharge letters, office petitions, warning letters, performance evaluations, statements in management or employee meetings, and internal security meetings. Companies typically defend themselves in such actions by arguing that the statements communicated about the employee were true, or they had a qualified privilege to say such things, thereby insulating the company from prosecution. For example, a supervisor writes a memo stating that he had lost confidence in a particular employee's work and charging the worker with unsatisfactory performance and poor attitude. The worker is then fired, and sues the company for libel. The company will prevail if it can prove that the contents of the memo are the supervisor's honest opinion.

In one similar case the court ruled that such expressions, even if harsh, are protected and cannot be the basis of a libel suit. An employer has the right, without judicial interference, to assess an employee's performance on the job, since communication by one person to another upon a subject in which both have an interest is protected by a qualified privilege. Even extremely harsh opinions have found protection in the courts.

There are, however, occasions when "opinion" becomes slander. One stockbroker incurred the enmity of the company's vice president. A heated exchange between the two men culminated in the employee's termination. Shortly afterwards, two of his customers, who had learned of his dismissal, requested a meeting with the vice president to inquire about the status of their investments. At the meeting the vice president told them that the stockbroker was about to lose his stockbroker's license, was in big trouble with the Securities and Exchange Commission (SEC) and would "never work again." Told of these remarks, the stockbroker sued his ex-employer for slander. He argued that the company's qualified privilege was lost since the words were spoken with malice, designed to destroy his livelihood, and with knowledge that the statements were false.

The Texas Court of Appeals agreed and ruled that the vice president's words were not protected opinion. Viewed in the context in which they were communicated, the court found that the recipients of the statements could reasonably conclude that the comments were based upon undisclosed defamatory facts. The court also rejected the company's attempt to disclaim responsibility for the vice president's utterances since his status as a manager and an officer provided him with authority to speak for and bind the company. The vice president's loose "opinions" about the employee proved costly to his employer. The jury awarded him $212,875 for past and future damages to his reputation; $84,525 for lost damages; $19,791 for past mental anguish, humiliation and embarrassment; and $1 million for exemplary damages. This did not include the exorbitant legal fees paid by the company in its unsuccessful defense of the matter.

Companies must carefully guard comments made by upper management regarding an employee. When untrue statements are made which cause someone a great deal of embarrassment, humilia- tion and stress, damages for loss of reputation are available in an action for libel or slander because the loss of reputation is a foreseeable consequence of the publication of defamatory statements.

Counsel Comment #86: Employers should establish policies regarding the disclosure of information. Potentially damaging communications in performance appraisals and comments made to prospective employers should be reviewed by a supervisor before dissemination and the contents should be disclosed to essential third parties only. Confine the evaluation to the subject. Make sure only those concerned in the matter are present or within earshot. Where possible, confidentiality should be maintained to avoid violations of privacy and defamatory implications. Avoid circulating damaging written materials because if the document is obtained by the plaintiff, proving his/her case will be easier.

Always avoid disseminating written materials that are libelous per se or making statements that constitute slander per se. Defamation per se generally occurs when written or spoken communications impute commission of a criminal offense; impute infection with a loathsome communicable disease (such as AIDS); impute lack of integrity in the discharge of employment, profession, trade or business; or impute lack of chastity in a woman. A victim of libel or slander per se is not required to prove special damages at trial because damages are presumed from the harmful communication.

For example, circulating an untrue memo around the office that someone is suspected of being a thief, drug abuser, drinks too much at lunch, is an emotionally unstable lunatic or is a whore are probably defamatory per se and should never be passed around. In a Virginia decision, a worker was awarded substantial compensatory and punitive damages against his former employer which had issued a memoran- dum accusing the employee of "mismanagement of funds." The Virginia court found that the employee had not committed fraud nor had he utilized funds for any purpose.

Employee References. Supervisory personnel should be instructed to avoid making excited and emotional remarks to employees, particular- ly those they are in the process of dismissing. Poor references can lead to expensive lawsuits so the best rule is to play it safe, whenever possible, by avoiding disparaging comments.

Counsel Comments #87: Be sensitive about writing derogatory letters concerning ex-employees since they are fraught with danger. Imputations that an employee is lacking in competence, sobriety, honesty or chastity can lead to successful libel suits. Limit the dissemination of potentially damaging office rumors, gossip and scuttlebutt conveyed as fact without any disclaimer or explanation.

In the absence of a contract or other legal requirement that employee dismissals be given in writing, you may wish to avoid disclosing poor evaluations or comments about a worker or ex-worker. All too often, embittered ex-employees will harass companies and former supervisors with lawsuits if they can pin an action on a derogatory writing. Be cautious about committing your company in letters on the subject. The best policy for a company to follow, when an employee has left under a cloud and there has been no actual criminal action, is to avoid saying or writing anything imputing dishonesty or immorality to the ex-employee. Since a false statement by an employer that it discharged an employee for dishonesty may be libelous per se, why take chances?

Public Disclosure Of Private Facts

A related concern for companies involves the public disclosure of truthful but private facts. One that publicizes a matter concerning the private life of another may be liable for invasion of privacy if the subject matter revealed is highly offensive to a reasonable person and is not of legitimate concern. While companies may legally discuss public facts, such as criminal records or information contained in official court documents, they may not generally publish information regarding an employee's or ex-employee's tax records or medical history (even an accurate diagnosis of AIDS) since the matters published are confidential and their dissemination is highly offensive to the reasonable person. Unlike defamation actions, truth is not a defense to an action for disclosure of private facts.

Counsel Comment #88: Never reveal or discuss private information with outsiders. In many states any dissemination of private employment data to prospective employers other than the dates of employment, position held and latest salary figures is illegal. Many states specifically prohibit the dissemination of confidential private medical information by statute. Since the laws in each state vary, consult with counsel before dissemin- ating any information regarding an employee that can even remotely be considered private.

Freedom From Trespass And Other Rights

Employees have other rights, such as being protected from an employer's trespass. It is illegal to have a company investigator enter an employee's house when no one is home by forcing open a window in order to confiscate certain allegedly stolen property. Companies cannot appropriate the name or likeness of an employee for example, as a model in a company advertisement or brochure without first obtaining the employee's written consent or paying reasonable compensation or giving an additional benefit for such use. Also, it is illegal to place an employee before the public in a false light, such as by causing a letter that did not accurately reflect the employee's views to be published with the employee's name in a newspaper or magazine.