Legal Bulletins

After Acquired Evidence

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Robert C. Kellner
December 2006

After an employee files a discrimination or wrongful termination claim, discovery may yield previously unknown information about misconduct in which the employee had engaged while employed. Over the years, the state and federal courts have grappled with the question of what effect, if any, such “after-acquired evidence” should have on the employee’s claim. In fact, unanimity of approach still does not exist among the courts on some fundamental issues pertaining to the scope and application of the After-Acquired Evidence Rule (the “AAER”).

Origin of the AAER

In McKennon v. Nashville Banner Publishing Company, 513 U.S. 352 (1995), the Court held that an employee’s recovery of back pay and front pay can be cutoff if an employer first discovers during employment discrimination litigation that the employee engaged in misconduct that would have resulted in a lawful discharge. The Court also held that the employee forfeited the right to reinstatement in that situation.

In adopting that approach, the Court tried to strike a proper balance between an employer’s right to discipline employees and the need to protect employees from decisions motivated by unlawful discrimination. The Court acknowledged that the AAER might encourage opportunistic employers to undertake extensive discovery when sued in the hope of finding an excuse to justify such decisions. The Court felt, however, that potential attorneys' fees awards and the sanctions available under the Federal Rules of Civil Procedure would deter most abuses by employers. The Court also imposed certain limitations that restrict the availability and effect of the AAER.

The Court refrained from creating a bright line rule that invariably cuts off back pay as of a certain point in time, choosing instead to give trial courts the discretion to decide the ultimate effect of after-acquired evidence. Indeed, the AAER permits trial courts to consider undefined “extraordinary equitable circumstances that affect the legitimate interests of either party” in fashioning an appropriate remedy. As a consequence, a trial court judge may circumscribe the effect of the AAER whenever an employer appears to overreaching by concocting frivolous reasons to justify a termination.

In addition, an employer invoking AAER must show that the wrongdoing was so severe that the employee certainly would have been discharged for that misconduct alone if it had been known when the termination decision was made. For example, in McKennon, the plaintiff had admitted when deposed that she had copied without authorization confidential financial records found on the comptroller's desk because she expected to be laid off due to her age. That misconduct was a clear violation of company policy.

Moreover, the AAER allows the recovery of compensatory and punitive damages if an employee can prove that the employer’s discriminatory conduct supports such an award under the applicable statutory criteria. Hence, after-acquired evidence does not insulate an employer from those types of damages, which can exceed the total amount of back pay that could have been recovered. Russell v. Microdyne Corp., 63 F.3d 1229, 1240-1241 (4th Cir. 1995).

Furthermore, employers who consider invoking the AAER face a genuine tactical dilemma. A trier of fact will understandably view with skepticism an attempt to justify a termination based on recently discovered misconduct, such as the falsification of a job application, especially if the employee had performed satisfactorily before being terminated. For that reason, an employer must think long and hard before risking such a reaction and the potential adverse effect on the defense of the merits on the underlying claim.

The Courts Have Frequently Applied The AAER.

Undaunted by those legal and strategic limitations, dozens of reported decisions by courts in various jurisdictions indicate that employers have successfully relied upon the AAER in many cases. Research, however, found no post-McKennon published decision by the United States District for the District of Maryland that applied the AAER.

Moreover, only one decision issued by the Fourth Circuit of Appeals involving an employment discrimination claim was found. In Russell v. Microdyne Corp., supra, an employee alleged that her employer had violated Title VII denying her promotions and pay raises, sexually harassing her, and retaliating against her for complaining about that unlawful conduct. The employer purportedly learned for the first time during discovery that the employee’s job application had misrepresented the names of her current and most recent employers and her current salary and reason for leaving her last employer. Before the McKennon decision issued, the trial court granted the employer summary judgment on the employee’s claims based upon that after-acquired evidence.

The appellate court reversed that decision for two reasons. First, the grant of summary judgment was inconsistent with the approach articulated in McKennon because the trial court had precluded the employee from recovering any back pay and compensatory and punitive damages. Second, the employee had created a genuine issue of material fact by insisting that she had provided correct information about the pertinent subjects when she was interviewed. Id. ,at 1240.

In remanding the case, the appellate court observed that it involved an unusual situation because the employer had terminated the employee only after the trial court had granted summary judgment, not immediately upon learning of the misrepresentations. Id., at 1235 and 1238. The court stated that, despite that delay, the employee’s recovery of back pay could still be cut off effective the date on which the employer had discovered the wrongdoing if the employer proved that the employee’s misconduct was sufficiently severe to justify termination. Even if the employer made that showing, however, the misrepresentations would not necessarily preclude the employee from recovering compensatory and punitive damages. Id., at 1240.

In many situations, the employee admits having engaged in misconduct or documents conclusively show that he did so. Hence, the courts have granted summary judgments because no dispute exists about the occurrence, nature, severity, or timing of discovery of the employee’s misconduct so the entitlement to reinstatement, back pay, and front pay may be determined as a matter of law. See Underwood v. Perry County, 417 F.3d 1183 (11th Cir. 2005) (employee who applied for truck driver job was issued speeding tickets during litigation); O’Day v. McDonnell Douglas, 79 F.3d 756 (9th Cir. 1996) (employee stole list of employees to be laid off); Greene v. Coach, Inc., 218 F. Supp. 2d 404 (S.D.N.Y. 2002) (employee falsified job application by stating that she had a college degree and omitting the name of a prior employer who terminated her for stealing); Carlson v. WLPG/TV-10, 956 F. Supp. 994 (S.D. Fla. 1996) (employee lied in applying for emergency leave); Hunt v. Bennett Enterprises, Case No. 3:02CV7195, 2003 U.S. Dist. LEXIS 8096 (N.D. Ohio 2003) (employee copied 500 confidential personnel documents).

Federal Courts Have Applied The AAER In Cases Unrelated To Employment Discrimination.

The federal courts have considered application of the AAER in cases unrelated to employment discrimination. For example, in Miller v. AT&T Corp., 250 F.3d 820 (4th Cir. 2001), the employee claimed that the company had violated the Family and Medical Leave Act by terminating her based on absences protected by that statute. The court, however, rejected the employer’s argument that the employee would have been terminated for poor attendance due to other subsequent absences. Thus, the court affirmed the summary judgment granted to the employee on the issue of liability. See also Edgar v. JAC Products, Inc., 443 F.3d 501 (6th Cir. 2006); Aubuchon v. Knauf Fiberglass, GMBH, 240 F. Supp. 2d 859 (S.D. In. 2003).

The court in Hartman Brothers Heating & Air Conditioning, Inc. v. NLRB, 280 F.3d 1110 (7th Cir. 2002), the court enforced a Board decision order that cut off a union organizer’s right to back pay effective when the employer learned that he had falsified his job application. The employer had discovered the misrepresentation only a few hours after the organizer had started working.

The Court’s decision in Hoffman Plastic Compounds, Inc. v. NLRB, 535 U.S. 137 (2002) imposed an even harsher sanction is response to an employee’s wrongdoing. The Court held that an undocumented alien, who had lied to the employer about his ability to work legally in the U.S., could not be awarded any back pay pursuant to the National Labor Relations Act, not just the lost earnings attributable to the period before he testified at an administrative hearing about his illegal status.

In reaching that conclusion, the Court emphasized that the Immigration Reform and Control Act prohibited the employee from working so awarding him back pay would be inconsistent with the policy underlying that statute. Although the Court did not cite McKennon as support for its holding, the effect and reliance on information acquired after the employee’s termination was essentially the same.

Some courts have been reluctant to follow what would seem to be the logical implications of Hoffman regarding the entitlement to lost earnings for claims under other statutes. For example, in Rivera v. NIBCO, Inc., 364 F.3d 1057 (9th Cir. 2004), the court held that the employer could not depose employees, who alleged they had been terminated due to their national origin, about their immigrant status. The court insisted that such an inquiry would chill legal immigrants from pursuing legitimate Title VII claims. The court explained that the holding in Hoffman did not apply to such claims because: (1) Title VII, unlike the NLRA, principally depends on private causes of action for enforcement; (2) Title VII provided for the recovery of compensatory and punitive damage, not simply back pay, in order to send a strong message to employers; and (3) the courts in deciding whether to award back pay can balance IRCA and Title VII when those laws conflict, whereas the NLRB is not authorized to make such accommodations. Id., at 1067-1068.

Those purported distinctions ignore or misconstrue the enforcement scheme under the NLRA. For instance, the NLRB cannot initiate unfair labor practice cases so that agency relies upon unions and individuals to trigger the administrative enforcement mechanism. The EEOC, on the other hand, can file civil actions against employers and can utilize commissioner’s charges as the basis for undertaking investigations.

In addition, the remedies provided by the NLRA are also intended to send strong messages to employers who might be tempted to interfere with employees’ rights under that law. Those remedies include back pay awards, reinstatement of terminated employees, cease and desist orders, and the ability to obtain injunctive relief. Moreover, the NLRB is empowered to construe the NLRA in a manner that avoids conflicts with other statutes.

The Rivera decision seems to manifest a result-oriented approach motivated by the court’s sympathy for aliens who are perceived as being more vulnerable to exploitation and abuse by employers. See also Flores v. Amigon, 233 F. Supp. 2d 462 (E.D.N.Y. 2002) (employer may conduct discovery regarding immigration status of employee pursuing claim for overtime pay under Fair Labor Standards Act); Correa v. Waymouth Farms, Inc., 664 N.W.2d 324 (Minn. 2003) (illegal alien may recover temporary total disability benefits under workers’ compensation law). Cf. Crespo v. Evergo Corp., 366 N.J. Super. 391, 841 A.2d 471 (2004) (court followed Hoffman reasoning in holding illegal alien pursuing claim for discriminatory termination may not recover back pay or damages pursuant to state civil rights statute).

In addition, the court approved a bifurcation plan that required the employees to testify about their immigrant status after the liability phase to demonstrate that they were entitled to back pay, reinstatement, and other remedies. As a consequence, the court did not eliminate the potential chilling effect on the employees’ willingness to prosecute their Title VII claims because they know that they will eventually be required to disclose that information. Moreover, the court effectively created a category of after-acquired evidence cases in which employers cannot conduct the type of discovery normally allowed. See Rivera, 364 F.3d at 1070-1072 (employer precluded from conducting discovery regarding employees’ immigrant status in connection with invocation of the AAER).

The Supreme Court may find it necessary to address the application of Hoffman to discrimination claims filed pursuant to federal civil rights statutes. If that day arrives, the Court’s analysis may occur in a political environment that has become increasingly hostile toward illegal immigration since Hoffman was decided.

State Courts Have Applied The AAER.
Camp v. Jeffer, Mangels, Butler & Marmaro, 35 Cal. App. 4th 620, 42 Cal. Rptr.2d 329 (1995), the employer, a law firm, discovered that the employees’ job applications failed to disclose that they had been convicted of felonies that clearly disqualified them from employment. The court cited McKennon in holding that the employees’ misconduct was so extraordinary that they were barred from obtaining any remedy for their wrongful discharge and California Fair Employment and Housing Act claims.

In Murillo v. Rite Stuff Foods, Inc., 65 Cal. App. 4th 833, 77 Cal. Rptr.2d 12 (1998), employee alleged the full panoply of claims, including claims for sexual harassment, wrongful termination, negligence, negligent supervision, invasion of privacy, assault, false imprisonment, intentional and negligent infliction of emotional harm, and breach of contract and the covenant of good faith and fair dealing. While being deposed, the plaintiff admitted that she was an undocumented alien and had presented forged identification documents to the employer when hired. The court permitted the employee to pursue the claims that were predicated on the tortious conduct and sexual harassment that she had endured while employed. The court, however, precluded the employee from maintaining the claims predicated on her termination because her illegal conduct had exposed her employer to potential liability under federal immigration laws.

In Trico Technologies Corp. v. Montiel, 944 S.W.2d 308 (Tex. 1997), the employer learned during the litigation that the employee had lied on her job application when she denied having been treated for alcoholism or any related medical conditions. The court held that employee, who alleged that she had been terminated in retaliation for filing a claim for workers’ compensation, could not recover back pay for the period after the employer learned about that falsification.

Other state courts have reached similar results in cases involving claims of violations of state civil rights laws (Wright v. Restaurant Concept Management, Inc., 532 N.W.2d 889 (Mich. Ct. App. 1995); Brooks v. Lexington-Fayette Urban County Housing Authority, 132 S.W.3d 790 (Ky. 2004); Brown Distributing Co. of West Palm Beach v. Marcell, 890 S.W.2d 1227 (Fla. Dist. Ct. App. 2005); Johnson v. Bd. Trustees of Durham Technical Comm. College, 157 N.C. App. 38, 577 S.E.2d 670 (2003).), breach of express and implied employment contracts (Lewis v. Fisher Service Co., 495 S.E.2d 440 (S.C. 1998); Gassmann v. Evangelical Lutheran Good Samaritan Society, Inc., 933 P.2d 743 (Kan. 1997); Crawford Rehabilitation Services,Inc. v. Weissman, 938 P.2d 540 (Col. 1997); Teter v. Republic Parking System, Inc., 181 S.W.3d 330 (Tenn. 2005)) and wrongful discharge (O'Day v. McDonnell Douglas Helicopter Co., 959 P.2d 792 (Ariz. 1998); McDill v. Environamics Corp., 757 A.2d 162 (N.H. 2000); Walters v. U.S. Gypsum Co., 537 N.W.2d 708 (Iowa 1995)).

The Courts Closely Scrutinize Employers’ After-Acquired Evidence Of Wrongdoing.

Employers bear the burden of proving by a preponderance of the evidence the following elements of the AAER: (1) the employee engaged in misconduct; (2) the misconduct was serious; (3) the employer did not know about the misconduct when the challenged employment-related decision was made; and (4) the employer definitely would have terminated the employee if that information had been known. See Red Deer v. Cherokee County, Iowa, 183 F.R.D. 642 (N.D. Ia. 1999).

In determining whether the employer has met that burden, the courts focus on the employer’s actual practices, not just bald, conclusory assertions that the employee would have been discharged. Employers should submit copies of the company’s work rules and practices and testimony from supervisors or human resources managers regarding why the misconduct was considered serious and identify other employees terminated for engaging in the same type of misconduct. See O'Day v. McDonnell Douglas, 79 F.3d 756 (9th Cir. 1996). Cf. Petrovich v. LPI Service Corp., 949 F. Supp. 626 (N.D. Ill. 1996) (employer failed to meet burden of proof by simply submitting plaintiff’s interrogatory answer and supervisor’s affidavits stating that plaintiff had engaged in the misconduct).

The courts’ close scrutiny of employers’ evidentiary proof obviously reflects their skepticism whenever the AAER is invoked. An employee confronted with the AAER should take advantage of that judicial attitude by obtaining information regarding co-workers who were not terminated for the same type misconduct relied upon by the employer as after-acquired evidence.

Conclusion

The AAER can be an effective weapon in reducing an employers’ potential liability if properly and carefully used. Indeed, the number of state and federal cases in which employers successfully invoked the AAER indicates that, perhaps somewhat surprisingly, the courts have been receptive to that defense.

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