Terminating Bankrupt Employee, Quirky Question # 93
I am the Chief Financial Officer of a public company. I recently learned that the Controller of our company has filed for personal bankruptcy. I don’t think that we should have someone in that position who has obviously been unable to handle her own finances – not only because she has access to the company’s finances, but also because as word of this spreads, I don’t think that others in management will trust her judgment any longer. Is there any reason that we cannot terminate her employment?
[Readers: Quirky Question # 93 was posed to my partner, David Lauth. David's analysis is set forth below. If you would like more information about this issue, do not hesitate to contact David directly at 612.343.7940, or via email at lauth.david@dorsey.com. For more information on David, check out http://www.dorsey.com/lauth_david/. Regards, Roy]
David’s Analysis:
You ask whether there is any reason why your company could not terminate your Company’s Controller, given the fact that she has declared personal bankruptcy. There is.
It is a completely understandable and appropriate impulse to have the concerns you expressed. There are very good reasons to worry that someone in this situation may be more tempted than usual to cross the line into dishonest or unethical behavior, and good reasons to worry that other people in the company are going to lose faith in her abilities and her judgment.
The obstacle to terminating her employment is the United States Bankruptcy Code. Part of the goal of a bankruptcy filing, of course, is to help a debtor get a fresh start. To that end, a provision in the Bankruptcy Code directly addresses this situation and protects the employee.
11 U.S.C. 525 (b) provides as follows:
“No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—
Act . . .”
It is clear under the statute, however, that an employer cannot terminate an employee simply because the employee has filed for bankruptcy, even if the employer has a reasonable fear that others will react negatively to news of the filing. In re Hopkins, 66 B.R. 828 (W.D. Ark. 1986). In your situation, a termination of this employee will likely lead to a claim that the statute has been violated.
Firing a Registered Sex Offender, Quirky Question # 51
Quirky Question # 51:
We are a mid-sized technology company headquartered in California. We have twelve outside salespeople who travel three to four days a week. Typically, the outside salespeople visit our office about once a week. One of our employees in another department informed me that she had been searching the California sexual offender registry and found one of the outside salespeople on the website. She is very disturbed and upset by this information.
I checked the website myself, and sure enough, he was listed. Although she interacts very little with the outside salesperson, she was nonetheless very reluctant to continue working with this person and expressed concern about our company keeping him as an employee. What can I do? I’m afraid that if we keep him, the reporting employee will have some sort of hostile work environment claim. On the other hand, if we terminate the salesperson, are we also risking a lawsuit? Can we fire the outside salesperson based on this information?
[Set forth is another one of our California Quirky Questions. The analysis below was supplied by Jessica Linehan. Jessica, a 1999 graduate of the University of Southern California and a 2002 graduate of University of Southern California Law School, can be reached at 949.932.3675 or by email at linehan.jessica@dorsey.com.]
Jessica’s Analysis:
Your question implicates specific California law on this issue. By way of background, the federal statute enacted in 1996 known as “Megan’s Law” requires every state to create a registry for convicted sex offenders and make certain information about those offenders available to the public. This information is available online at sites such as http://www.meganslaw.ca.gov and www.Megans-law.net, and can be accessed by anyone at any time. Certain sites allow you to search by name or location, so it is inevitable that curious coworkers may sometimes unearth a hidden sex offender. When this happens, the employer is faced with numerous challenges that need to be addressed.
California’s version of Megan’s Law specifically prohibits use of information obtained on websites as to sex offenders in employment decisions, except in limited circumstances. Cal. Penal Code § 290.4(d)(2)(E). The statute provides that use is authorized only to “protect a person at risk.” See Id. at § (d)(1). The limited circumstances where use of such information is allowed is generally for particular lines of business involving minors, such as community care facilities or day care facilities. See id. at § (d)(3). If your line of business does not involve direct involvement with children that would qualify as “person at risk,” think twice about using information obtained from these websites in employment decisions.
Improper use of information disclosed on the sexual offender registries could subject employers to liability. California’s Megan’s Law expressly subjects misusers of such information to liability for actual, and trebled, damages, or a civil penalty not exceeding $25,000. Id. at § (d)(4)(A). In light of the Penal Code’s prohibition of use of the sex offender information found on the database, employers should be very careful to distance themselves from any perception that such information is being relied upon for purposes of an employment decision. An employer who terminates an employee based on its findings on the sexual offender registries also risks a claim of wrongful termination in violation of public policy. While there are currently no reported California cases advancing this theory, there is existing case law and authority that would provide the foundation for a wrongful termination claim on this basis. California case law has addressed the “compelling and necessary” public purposes for such registries, and have made clear that the legislative intent is not for the information to “be used to inflict . . . additional punishment on any such person convicted of a sexual offense.” See People v. Jones, 101 Cal. App. 4th 220 (2002); 89 Ops. Cal. Atty Gen 85 (April 27, 2006). Thus, your company would be restricted from terminating the employee your employee found listed on the sexual offender registry.
You also will need to be cognizant of the effect of the knowledge about this employee in the office environment. The employee who first discovered this information may not be inclined to keep it quiet, despite the statute’s restrictions on disclosure. To avoid the potential backlash against this employee, where other employees’ actions or reactions to this information could create problems (and potential liability for your firm), it is important to speak with both the employee who discovered the information and the employee sex offender.
With respect to the employee who discovered the information, you should counsel that employee as to the need for individual privacy and the laws that generally prohibit use of this information in the workplace. That way, you will be able to explain why action cannot necessarily be taken on the sole grounds of this discovery, while assuring your employee that her concerns are valid. You should also follow up periodically with the employee who voiced her discomfort to ensure that no worrisome behavior on the part of the sex offender employee has surfaced. Document each instance you follow up with the concerned employee and document her feedback as well. For the sex offender employee, you should be up front about the discovery. You should request that the reporting employee inform you of any inappropriate behavior he perceives from other employees and follow up periodically. Document your conversations.
Of course, it is always better to prevent this type of unfortunate situation in the first place by using effective pre-employment screening. An effective and thorough employment application can be the best starting place. While generalized inquiries as to arrests should be avoided, inquiries as to convictions, guilty pleas or pleas of no contest are generally valid. In addition, thorough background screening through reputable agencies is another tool to identify high risk individuals before hiring. Despite the many safeguards against use of information discovered on California’s Megan Law website, there are no such restrictions if the information were disclosed in the course of a properly-conducted background search. A person’s status as a sexual offender is not a protected class within the meaning of the California Fair Employment and Housing Act. See also 89 Ops. Cal. Atty. Gen. 85 (April 27, 2006). Note that such background checks must be conducted within the parameters of state and federal laws and have specific notice and disclosure requirements that must be followed. In addition, keep in mind that not all information unearthed in a background check may be used in employment decisions.
Supplement to QQ # 51, Terminating a Registered Sex Offender: In QQ # 51, my California colleague, Jessica Linehan, addressed the issue of a company’s right to terminate a registered sex offender. Shortly after we addressed this issue, a federal court in Texas decided a case involving the same legal questions. See Vlasek v. Wal-Mart Stores, Inc., No. H-07-0386 (S.D. Texas July 22, 2008).
In the Vlasek case, Wal-Mart received an anonymous letter and phone call informing the company that its employee, Vlasek, was a registered sex offender. Vlasek had not disclosed her criminal conviction or her status as a registered sex offender on her job application. Upon receiving the information regarding Vlasek’s status as a registered sex offender, Wal-Mart representatives met with her. Vlasek contended that various representations were made to her during this meeting, assuring her that her job with Wal-Mart was secure notwithstanding her prior, undisclosed criminal conduct. Not long after this meeting, however, Wal-Mart terminated her employment.
Vlasek brought several claims, including: a) promissory estoppel; b) disability discrimination; c) sex discrimination; and d) violations of the Fair Credit Reporting Act. The court rejected all of her claims. As to Vlasek’s promissory estoppel claim, the court noted that Vlasek was an at-will employee and nothing said to her in the meeting could alter that status. The court also found that Vlasek had not relied to her detriment on any statements made to her during the meeting with the store supervisors. With regard to the ADA claim, the court simply found that Vlasek did not have any mental or physical impairment covered by the ADA. As to the sex discrimination claim, the court held that Vlasek had failed to exhaust her administrative remedies. Finally, although the court recognized that there was non-compliance with FCRA, the court found that Vlasek would have been fired even if she had been given a copy of background report that contained information regarding her past conviction and her registration as a sex offender.
Firing An Employee for Having an Abortion, Quirky Question # 46
Quirky Question # 46:
We are a privately held company that runs a large software sales organization. The family that started our company and that still dominates its executive ranks has conservative values. Among those issues about which the owners feel strongly is the abortion issue. They do not believe that women should have abortions under any circumstances.
One of our employees who was pregnant recently learned that there were serious problems with her unborn child. Although her own life would not have been in jeopardy had she carried the child to term, her physicians recommended that she terminate the pregnancy. She and her husband agonized over this decision but decided to follow the medical recommendations.
I am the HR Director and I have now been instructed to terminate our employee’s employment. No explanation has been offered for why the company wants to discharge her. I do know, however, that she has not previously had any performance problems. To the contrary, she always has been highly regarded, a fact that is reflected in her glowing annual performance appraisals. Moreover, the discharge decision is not being motivated by any economic downturn. Our company is exceeding our year’s financial goals and no other employees are being laid off.
My instincts tell me the directive I have received is motivated by the fact that our employee decided to have an abortion, though no one specifically provided that explanation to me. Nevertheless, this directive just does not sit well with me. If I terminate her employment when she returns from the leave associated with the medical procedure and the funeral of her child, will I be exposing the company to risk?
Roy’s Analysis:
As I have stated in other Blog analyses, trust your instincts. Based on the facts you report, you would be exposing the company to risk. Terminating an employee because she had an abortion violates Title VII, and the Pregnancy Discrimination Act (PDA) contained therein.
Although this particular issue has not been litigated frequently, the federal courts that have examined this issue have held that is impermissible for an employer to terminate an employee because she elected to have an abortion. This analysis is supported by the legislative history of the PDA and the Equal Employment Opportunity Commission (EEOC), to which the courts often defer when adjudicating issues relating to employment law.
The PDA states, “the terms ‘because of sex’ or ‘on the basis of sex’ include but are not limited to, because of or on the basis of pregnancy, childbirth, or related medical conditions; and women affected by pregnancy, childbirth, or related medical conditions shall be treated the same for all employment-related purposes, including receipt of benefits under fringe benefit programs, as other persons not so affected but similar in their ability or inability to work.” 42 U.S.C. § 200e(k). The question, therefore, is whether an abortion is a “related medical condition” under the statute.
As referenced above, the EEOC has weighed in on this issue. The EEOC has stated that,
“The basic principle of the [PDA] is that women affected by pregnancy and related medical conditions must be treated the same as other applicants and employees on the basis of their ability or inability to work. A woman is therefore protected against such practices as being fired . . . merely because she is pregnant or has had an abortion.” 29 C.F.R. pt. 1604 App. (1986).
The EEOC’s interpretation of the PDA also is consistent with the legislative history of the statute. “Because the [PDA] applies to all situations in which women are ‘affected by pregnancy, childbirth, and related medical conditions,’ its basic language covers women who chose to terminate their pregnancies. Thus, no employer may, for example, fire or refuse to hire a woman simply because she has exercised her right to have an abortion.” H.R. Conf. Rep. No. 95-1786 at 4 (1978), reprinted in 95th Cong. 2d Sess. 4,1978 U.S.C.C.A.N.4749, 4766.
In a very recent case from the Third Circuit Court of Appeals, Doe v. C.A.R.S Protection Plus, Inc., et al., Nos. 06-3625, 06-4508 (May 30, 2008), the appellate court analyzed these issues in light of the language of the PDA, its legislative history and the EEOC’s position, and stated, “We now hold that the term “related medical conditions” includes an abortion.”
The C.A.R.S case went up to the Third Circuit after the District Court granted the employer summary judgment on the plaintiff’s Title VII claim. The appellate court reversed.
The facts in C.A.R.S were straightforward. One of the company’s employees discovered that there were serious medical problems associated with her pregnancy. The employee learned her unborn child had severe deformities leading her physician to recommend the pregnancy be terminated. She and her husband evaluated the recommendation and elected to follow their physician’s advice. Because C.A.R.S had a miserly leave policy for its employees (the appellate court charitably described the leave policies as “less than compassionate”), which did not provide for any personal or sick leave and five days of vacation only after an employee had been employed for at least one year, the employee’s husband had kept the company apprised of his wife’s medical visits. He also requested leave time for his wife for the funeral and asked whether she could use her vacation week to grieve following the funeral. There was conflicting testimony about whether this request had been granted by the employer. But, there was no dispute that on the day of the funeral, the company packed up the employee’s personal belongings and terminated her employment.
The company attempted to demonstrate that its discharge decision was not discriminatory. Rather, the company argued, it was based on its policies prohibiting any personal or sick leave. The appellate court, however, found that those policies were not uniformly applied and that several male employees had been given time off for medical-related conditions (mental illness, heart attack, back problems, etc.). The evidence also demonstrated that there was no uniform policy regarding whether an employee was required to call in to the company to request time off for an illness.
Based on these facts, the appellate court found that Doe (the District Court agreed to allow the plaintiff to be identified anonymously) had made out a prima facie case of pregnancy discrimination. The Third Circuit also found that Doe had raised a fact issue as to whether the reasons articulated by C.A.R.S for its decision were pretextual. Here, the court pointed to some of the same evidence that had been used to establish the prima facie case, as well as a comment by Doe’s supervisor that the lower court had inappropriately treated as a “stray comment.” The appellate court also found that the temporal proximity between the employee’s decision to terminate her pregnancy and the company’s decision to discharge her was “unusually suggestive,” noting that temporal proximity alone may be sufficient to create an “inference of causality” sufficient to defeat summary judgment.
The Third Circuit sent the case back to the trial court for further proceedings. Assuming it is not resolved through settlement, the jury will have to decide whether the evidence supports the argument that Doe was fired because she elected to terminate her pregnancy or whether she was fired for “abandoning” her job, as alleged by the company. The underlying legal issue on which Doe’s case is grounded, however, has been resolved – it is a violation of Title VII and the PDA to terminate an employee because she elected to have an abortion. The task for the jury will be to make a factual determination regarding the employer’s true motivation for discharging the employee.
In the fact pattern presented in your question, you posit that you have been directed to terminate the employee who recently had an abortion. I suggest that you explore with your company’s management the underlying reasons for why they wish to terminate the employee. If they acknowledge that their motivation to discharge her is driven by her decision to have an abortion, you should explain that such a decision would constitute a violation of Title VII and the PDA. If they direct you to terminate her employment anyway, you have an ethical decision to make. Consider it in the broader context of whether you would engage in other illegal conduct simply because you supervisors directed you to do so. For example, if your boss told you to fire someone based on his race, age or other protected classification, would you do so?
Email Communications with Lawyer, Quirky Question # 18
Quirky Question # 18:
We recently terminated one of our executives. One of our standard practices when we terminate a senior executive is to check carefully his/her email communications for the preceding twelve months. When we checked this executive’s email communications, we discovered approximately eight messages to and from a private law firm. The message subject line was: “Personal, My Discharge.”
We briefly skimmed these messages and found that they were communications between our former employee and her lawyer regarding her termination and potential claims she could bring against our company. What can we do with information? Can we share it with the company’s attorneys? Was it a mistake for us even to have skimmed these emails? (Incidentally, we have a “Computer Use Policy,” stating that the company owns all computer equipment and that we reserve the right to review any and all email communications sent on company computers.)
Roy’s Analysis:
Like several other Quirky Questions already addressed, your inquiries illustrate further how technological changes are changing the types of questions companies are routinely confronting in the workplace. The fundamental question you pose is whether the communications between your former executive and her private counsel are encompassed by the attorney-client privilege and whether that privilege has been waived by the executive’s method of communication. A subset of that question is whether the messages sent from your former executive should be treated any differently from the messages sent by the attorneys to your former executive.
There is surprisingly little case law on this issue. Clearly, the substance of communications between an individual and his or her lawyer are typically encompassed by the attorney-client privilege. Had your former employee sent a letter to her lawyers seeking guidance on issues relating to her discharge, your company would not have been able to obtain that letter in discovery. If your company had inadvertently received that correspondence because it was misaddressed, you would have been obligated to return it unread. Had your former employee orally communicated the content of the emails to her lawyers, again these communications would be privileged.
The attorney-client privilege, however, requires those claiming its benefits to make reasonable efforts to ensure the confidentiality of the communications. Thus, a letter that had multiple “cc” recipients other than the lawyers to whom it was addressed would not be protected by the attorney-client privilege. Similarly, an oral communication made in the presence of others with whom no privilege existed would be undeserving of protection.
Arguably, given that your former employee used your company’s email system to communicate with her lawyers, the attorney-client privilege has been waived. This is especially true in light of your company’s well-defined (and, I will assume, well publicized) policy, stating that your company reserved the right to monitor all email communications.
There is not much case law on this subject, but there is a relatively recent decision out of New York implicating these same issues. In Scott vs. Beth Israel Medical Center, Inc., No. 602736/04 (New York Supreme Court, New York County; Oct. 17, 2007), the court found that a fired employee who communicated with his private employment law counsel via the company’s email system did not have an “expectation of confidentiality,” and had waived the attorney-client privilege. As in the fact situation you describe, the employer in the Scott case had an email policy that provided for the possibility of employer monitoring, a fact on which the court relied in reaching its decision. Beth Israel’s policy also prohibited the use of the company’s email system for personal reasons. According to the court, Beth Israel’s e-mail policy states that its e-mail system “should be used for business purposes only,” that documents sent over the system are the property of the medical center, that employees have no personal privacy rights in such material, and that the medical center “reserves the right to access and disclose such material at any time without prior notice.”
The court also rejected the notion that the standard disclaimer language at the end of the emails from the law firm to the executive created an expectation of confidentiality. “When client confidences are at risk, [the law firm’s] pro forma notice at the end of the email is insufficient and not a reasonable precaution to protect its clients.” Thus, the attorney-client privilege was not available for the emails either to or from the law firm.
Interestingly, unlike your situation, in the Scott case, the medical center did not review the emails. In that case, the employer notified the former executive’s attorneys that it was in possession of the unread emails and that it believed the attorney-client privilege had been waived. The employee’s law firm then raised this issue with the court, which rejected its claims of privilege.
Although the New York case is useful guidance, I urge you to move cautiously. If a court in your jurisdiction did not follow the approach of the Scott court, you would risk disqualifying your law firm if you shared the emails with your lawyers and they read these communications. Depending on the content of the communications, you might expose yourself to other sanctions as well.
I suggest you take the following steps. First, preserve the emails carefully. Second, do not allow anyone else, including your outside counsel, to read (or even, skim) the emails until you obtain judicial guidance. Third, notify your former employee’s attorneys that you are in possession of the emails and that you will be seeking a judicial determination on whether the attorney-client privilege was waived by your former employee’s use of the company’s email system to communicate with his private counsel. Fourth, file a motion seeking guidance from the court on whether the attorney-client privilege has been waived. In that motion, you will be able to point out all of your company’s policies demonstrating that there was no expectation of privacy or confidentiality with regard to personal emails sent out over your company’s email system. (To the extent that your former executive ever previously articulated a position on the lack of confidentiality associated with your email system, you should be able to exploit that fact.)
By taking these conservative steps, you will maximize your chances of being able to share the email communications with your counsel and use them effectively in the litigation. You also will minimize the risk that a court will find that any improper conduct associated with your review of the communications between your former executive and her counsel.
Executive Termination, Quirky Question # 1
We recently terminated one of our executives “without cause.” Under his employment contract, we are obligated to pay one year’s severance for terminations without cause. In contrast, we have no obligation to pay him anything if he is terminated “with cause.” Following his departure, we reviewed his computer hard drive. We discovered two areas of concern.
First, he had downloaded pornography onto his work computer, in violation of our clear policies regarding use of company computers and sexual harassment. Second, much to our surprise, we found on his computer a substantial number of confidential documents that he had taken from the company where he worked before joining our firm. This too violates our company policies – we strictly prohibit employees from introducing confidential, proprietary and trade secret information belonging to a former employer into our work place, whether in hard copy or electronic form.
Had we known these facts, we would have fired the executive for cause. Do we still have to pay him his one year severance pay?
In recent years, the after-acquired evidence doctrine has been applied in breach of contract cases – the type of case you would be confronting if you elected not to pay your former employee his severance compensation. For example, in a case directly relevant to your situation, the Supreme Court of Tennessee held that the after-acquired evidence applied in breach of contract cases. The court noted that a “majority of jurisdictions” allowed the use of after-acquired evidence as a complete bar to an employee’s recovery or to mitigate damages. The court stated that “those jurisdictions that have concluded that a complete bar to recovery is appropriate, generally reason that under well-established principles of contract law, the prior misconduct of the employee excuses the employer’s subsequent breach.” Teter vs. Republic Parking System, Inc., 181 S.W.3d 330 (Tenn. 2005). In the Teter case, like your situation, the company had discovered pornography on the former employee’s work computer. Importantly, the Supreme Court of Tennessee also found that because a breach of contract case did not implicate any particular public policies, the employer need only prove its contention that it would have fired the employee by the more typical civil liability “preponderance of the evidence” standard.
The situation you described adds another issue as well – the introduction of a different employer’s confidential and proprietary information into your workplace. This fact potentially provides you a separate justification for applying the “for cause” discharge standard.
The key question you will need to answer, both with respect to the pornography and the other employer’s confidential data, is whether your company would have fired the executive had it been aware that he had downloaded pornography, or brought confidential data belonging to another employer into your work environment, or both. If your firm can demonstrate that in the past, it has fired employees for downloading pornography, or for disregarding your policies regarding introducing another company’s proprietary or trade secret data into your workplace, your position will be enhanced significantly. Conversely, if your company has tolerated these kinds of actions by other employees in the past (especially if it has done so without imposing any discipline), your efforts to withhold the severance compensation based on your former employee’s wrongful conduct will be more difficult to justify.
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Thanks to the many individuals who have sent in a response to the first Quirky Question. As you will see, the consensus from the readers seems to be that the company should pay the executive his severance compensation and move on.
Response # 1: No, I don’t believe they are able to now use the issues that they have recently uncovered in order not to pay severance. That due diligence should have been done before the employee’s dismisal.
Response # 2: It seems to me that the executive has already been terminated, therefore you cannot go back to terminate for “cause” for something found AFTER his termination.
Response # 3: Really interesting question. The obvious place to start is the contract itself. (How’s that for a shocker?!) Does the contract define cause? Usually, the definition of cause includes “misconduct”. So far, so good. But some contracts also require the employer to give written notice of any misdonduct and/or an opportunity for the Executive to cure the problem. In that situation, the Executive would have the better argument. The employer would have to rely on the argument that the misconduct was of a nature that could not be cured. That’s a little dicey. The more interesting scenario is where the definition does not give the Executive a right to cure the misconduct. Then, let the games begin! The Executive may argue that this “after-acquired evidence” does not alter the employer’s reason for the discharge. The employer has already gone on record as describing the separation as a termination without cause and, therefore, should be estopped from changing its tune. But the employer can use the “after-acquired” evidence principle to its advantage. By analogy, in discrimination cases, where after-acquired evidence of misconduct is found, courts allow damages to be cut off from the date the evidence is discovered, if it was of a nature that would have caused the termination. The employer bears the burden of proof that it would have terminated the Executive. To show this, the employer should marshal evidence that it in fact terminated others who violated this policy. But if other violators were only reprimanded or suspended, the argument is considerably weakened. That is a good reminder of why every termination decision is a precedent of sorts.
Response # 4: Had he sued for wrongful discharge, your liability would have been limited to the time you discovered the terminable event. However, this is not a wrongful discharge case. He was terminated, admittedly, without cause at the time of termination. As such, the contract prevails unless it has a provision providing for later discovered cause. There is little question but that if you terminate the severance payments the executive will bring an employment claim. Even if it were defensible, the cost of defense (and probable settlement) probably meets or exceeds the cost of severance. My recommendation is to put this behind you and learn valuable lessons including the need to better supervise executives. One thing you could do is notify the former employer about the confidential info. discovered by sending them a copy of everything you found with a cover letter explaining how you found it and assuring them that you have now destroyed all copies in your possession. They DO have a claim against him and perhaps they will pursue it. Lastly, subject to contractual commitments to the contrary, you are free to provide this information to prospective future employers under the limited privilege available to employers.
Response # 5: When the Company separated the executive they were not aware of the violation of their sexual harassment policy and their confidential information policy. Even though the Company probably has a policy that the computer is their property and they can view what is contained in it at anytime, the point is they hadn’t done so at the time the decision was made to ask him to leave without cause. It is problematic to change your mind later on based on after acquired evidence, especially when you could have found the information if you had looked. I say pay him his one year of severance and be glad you’re rid of him before you had a sexual harrassment or Confidential Information lawsuit filed against him and the Company.
Response # 6: Response #3 (as well as some of the other responses) encompassed a lot of my thoughts. In counseling the remaining execs on this issue, I would sure raise the after-acquired evidence rationale/doctrine as a possible way to deny the severance, but I would also remind the executives that this could sure look like a bad faith, post-termination attempt to wiggle out of paying the $ (not to mention quite possibly constitute a breach of contract for which the company could be liable for not only the damages but also the exec’s attorney’s fees, costs, etc…) Of course, denying the severance $ based on the “porno” and “confidential” information of the prior e’er also raises the question of why the company didn’t do a search for these things while exec was employed — it looks (and would be portrayed by a plaintiff’s attorney) like the company was a-okay with him looking at the porno and using the confidential/proprietary info as long as he was with the company, but, now that he’s gone, the company is looking for any reason to deny the $. No doubt also that if the company wants to deny the $, it had better do some thorough due diligence before denying the $, in order to check the computers of its other higher-ups to see if similar materials are on their computers. It may be that the remaining execs become far less interested in denying the severance $ if they know that what is on their computers could be subject to discovery/scrutiny. As always, uniformity/consistency of enforcement of company policies and practices would also come into play. In the end, I bet most companies would pay the $ and be done with it, but may also revise future exec employment agreements to cover post-separation “bad acts” like this. A potential middle ground would be to confront the exiting exec with the “bad info” (possibly complete with actual images taken from his computer) and negotiate something less than 100% $; that way, if successful, some action has been taken, and a positive precedent set, but hopefully litigation and the associated dirty laundry airing would be avoided. Fun stuff.
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