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Section Review

The employer strikes back: A quick guide to claims against employees

Manning
Lurleen A. Manning is an employment attorney at Shepherd Law Group, P.C., a Boston law firm specializing in noncompete and trade-secret litigation and employee-lawsuit defense. This article is copyrighted © 2003 by Shepherd Law Group, P.C.
The most common thing our clients say when faced with an employee lawsuit is "We didn't do it." And the second-most common thing we hear is "How can we sue them back?"

Conventional wisdom says that employees don't have the deep pockets to make litigation worthwhile. But money damages aren't the only remedies available to employers who have been wronged. Sometimes an employer needs an injunction against an employee. And sometimes you have to sue an employee even if there is little chance of winning damages. This article is a quick reference guide to the different claims that an employer may bring against a current or former employee, the likelihood of success and the remedies available.

Can I sue an employee for spreading lies about my company?

Employers can sue employees for defamation. To win, the employer must prove that the statement harms the employer's reputation, is false and was publicized with the requisite degree of fault. Also, the statement must not be privileged. Courts recognize an absolute privilege for statements made in the course of judicial proceedings. For example, if the employee calls the boss a racist in the complaint, it's not going to be actionable. A further issue to consider is whether an employer corporation might be considered a public figure. If it is, it will be required to prove actual malice.

Despite the ability to sue for defamation, it still may not be advisable. Damages for employers, particularly corporations, are limited and difficult to prove. In Massachusetts, punitive damages are prohibited in all claims of defamation regardless of who the plaintiff is. And while an individual can recover compensatory damages for mental anguish, corporations cannot recover for emotional damages. The corporation may only recover for actual damage to its reputation.

A company can't sidestep this limit on damages by bringing a claim on behalf of an individual employee. Officers or other key employees of a corporation may not recover for defamatory statements made about the corporation. This is true even in cases where the officer is the major shareholder of the corporation and the corporation is named after him (i.e., Mike can't personally sue an employee for defaming Mike's Pizza).

Can I force an employee to honor his or her employment contract?

Employers may also sue employees for breach of contract. Most employment relationships are "at will" and can be ended by either party at any time for any reason, but some are based on a contract. As with other contracts, if either the employer or the employee fails to perform its obligations it may be held liable for damages.

But the ability to bring a suit doesn't always make it a good idea. Remedies for an employer can be difficult to recover. If the employer breaches the agreement, the employee's damages are generally clear: He may recover the full amount of the contract minus any amount he could have mitigated. But when the roles are reversed and it is the employee who breaches the agreement, it is considerably more difficult for the employer to prove damages. For example, an employer with a salaried staff would have difficulty assessing the additional recruitment costs it was forced to undertake as a result of the employee's breach.

The employer is also more limited than the employee in seeking an appropriate remedy for the breach. While a court can order an employer to reinstate an employee, it cannot require an employee to continue working. Specific performance of an employment contract would violate the Thirteenth Amendment prohibition against slavery.

Even though we had a noncompete agreement, my former employee is working for our biggest competitor. What can I do?

The strongest claim for an employer against an employee is breach of a noncompete agreement. Unlike other breach-of-contract claims, employers may recover appropriate remedies for the harm it has suffered. To prevail, an employer must show that the agreement is reasonable in scope and duration, that it's protecting a legitimate business interest - goodwill, bona-fide trade secrets or confidential business information - and that failure to enforce the agreement will harm the employer. Remedies can include money damages and an injunction barring the employee from working for his new employer.

A good tip to keep in mind when bringing this type of claim is to litigate the case quickly. If your argument is that you are being harmed every day this employee works for your competitor, it will look a little odd if you waited six months to file suit. But beware: You must carefully balance this need to rush to the courthouse against the need to sufficiently investigate your claim. Being prepared to describe to the judge exactly what type of confidential business information is at stake and how its use will harm you will increase your chances of winning a preliminary injunction. Judges are reluctant to put people out of work unless they are convinced there are real secrets at stake.

What if we didn't get our employees to sign noncompete agreements?

An employer can still protect its trade secrets even if its employees didn't sign noncompete agreements. Massachusetts General Laws Chapter 93, ßß 42 and 42A, protect employers against employees who steal confidential business information. The employer must establish the information is a trade secret within the meaning of the statute, reasonable measures were taken to protect the secrecy of the information and the employee has taken or used this information for his own benefit or for the benefit of his new employer. If the employer can prove this, it can recover money damages and an injunction.

Massachusetts, unlike some other states, has not recognized the "inevitable disclosure doctrine." This doctrine states that an employee who possesses confidential business information will inevitably disclose that information over the course of his new employment, and thus should be barred from working at the competitor. No appellate court in Massachusetts has ruled on this issue yet, but the consensus is that they will not be likely to adopt it. So to summarize, if you don't have evidence of trade secrets actually being used or disclosed, don't bother bringing this claim. Circumstantial evidence of use can be sufficient, such as if the employee's new company suddenly comes out with an identical product.

What if the employee was laying the groundwork while he was still working here?

Even if an employee hasn't signed a noncompete or nondisclosure agreement, the employer can sue for breach of the duty of loyalty. Employees have a common-law duty to act solely for their employer's benefit regarding all matters within their employment.

The parameters of this duty are not clearly defined. Courts have made it clear that at will employees may properly plan to go into competition with their employer and may take active steps to do so while still employed. But there are limits. Current employees may not use their employer's funds, or other employees, either for personal gain or in a way designed to harm the employer. Moreover, senior employees have a higher duty of loyalty. They cannot, for example, solicit employees or actively compete while still employed.

In short, employers can't force their employees to remain loyal. But if the employer finds out that it has been expensing trips for the employee to visit his new office space, it does have recourse. The employer may sue for money damages or disgorgement of any profits made at its expense, including damages for lost productivity.

Can I stop my former employee from trying to get our vendors to cease doing business with us?

Employers may also sue employees for their behavior after the employment relationship is over. An employer can bring a claim of intentional interference with advantageous relations against a former employee for interfering with its relationships with current employees - including at will employees - and with its vendors or customers.

Although it has a broad reach, this tort is difficult to prove. The employer must establish that the former employee acted with improper means or motive and that the employer suffered actual pecuniary harm. Both can be difficult to prove. Proof that the former employee was motivated to act because of personal financial gain is not enough to establish the improper interference requirement.

Can I use Chapter 93A to get triple damages from my former employee?

Savvy clients, aware of its treble-damages provision, often ask if they can bring a 93A claim against a former employee. The answer is almost always no. The Supreme Judicial Court has held that 93A claims are inappropriate for disputes arising out of the employer-employee relationship. Employment agreements between an employee and an employer do not constitute either "trade" or "commerce" within the meaning of the statute. This prohibition includes post-employment violations of a noncompete agreement.

One exception to the outright ban on these claims is when a former or current employee engages in unfair-trade practices for the benefit of his new employer or for his own company. An employer may properly bring a 93A claim against the new employer or the employee's company because he is no longer an employee and the dispute did not arise from the employment relationship.

My former employee refuses to return the laptop we lent him. What can we do to get it back?

The best course of action when faced with an employee caught stealing is to fire him immediately, call the police and then determine if a civil suit for conversion is worth pursuing. An employer may sue to recover the property itself or for the value of the property. Conversion also covers the intentional destruction of property. While the cost of litigation will often outweigh the value of the property, you might want to send a strong message to deter other employees.

What if the money isn't worth going to court over?

In cases where the employer decides not to bring a conversion claim it may consider garnishment of wages if the employee is still working for them. Massachusetts General Laws Chapter 149, ß 150, states that a valid set-off against wages is a defense to a claim for failure to pay wages. The advantage for the employer is that it can get its money back without having to go to court.

The consensus is that amounts that can be readily calculated and liquidated, such as cash-drawer shortages, would be considered a valid setoff. But neither the courts nor the Attorney General's Office have offered any guidance on what a "valid setoff" is, other than that the setoff cannot reduce the employee's pay below minimum wage. Since a claim for failure to pay wages carries with it the potential for treble damages, garnishing an employee's wages can be risky.

Can we get an employee to pay us back for the expenses of the lawsuit we were forced to defend of his behalf?

Lastly, our clients often want to know if they can force an employee to pay or help pay for the lawsuit they've been forced to defend on their behalf. A company has a right to contribution when it is only partially at fault for the plaintiff's injury but it has paid more than its fair share of the damages. A company has a right to indemnification when it is not at fault at all for the plaintiff's injury but was forced by operation of law to pay the plaintiff's damages. Massachusetts provides for a right of contribution among joint tortfeasors under Massachusetts General Laws chapter 231B, and it allows for indemnification of an employer who is only found liable because of respondeat superior.

One exception to the right of indemnification or contribution is for employment-discrimination claims brought against an employer under Massachusetts General Laws chapter 151B. The Supreme Judicial Court recently determined that allowing a right of contribution in these cases would interfere with the Legislature's preference for resolving these proceedings at the administrative level. But the court went on to say that an employer may protect its interests by contracting with employees for indemnification and then enforcing that contract in a separate action.

Conclusion

Like everyone else, employers can get angry, too. And angry people are more likely to run to the courthouse demanding justice. But before doing so, an employer should stop to consider both the likelihood of success and the availability of judicial remedies. Also, perhaps more than other plaintiffs, businesses need to consider the possibility of generating negative publicity. A smart decision to sue an employee will be based on sound business principles rather than emotion or revenge.

©2014 Massachusetts Bar Association