In Noonan v. Staples, Inc., the U.S. Court of Appeals for the First Circuit rejected the claims of a former Staples sales executive who alleged that the company violated his employment agreements and libeled him after he was fired for falsifying his expense reports. In its ruling, the First Circuit provided guidance regarding the Court’s role in reviewing “for cause” termination language in an employment agreement and confirmed a company’s right to make truthful statements about the reasons for an employee’s termination.
As a sales executive at Staples, Alan Noonan traveled extensively and submitted expense reports following each trip to receive reimbursement for his business expenses. Staples had a detailed travel and expense policy that specified the types of permitted expenses, the manner in which travel should be booked and paid for, and the limits on expenses. Staples conducted an audit of expense reports in 2005, including one of Noonan’s. Review of Noonan’s May 2005 expense report revealed that he had requested more than $1600 in reimbursement in excess of his actual expenses for that month. This discrepancy led the audit team to review all of Noonan’s 2005 expense reports. They found more errors, many in favor of Noonan, including an $11.29 fast food lunch for which Noonan received $1,129. During the investigation, Noonan claimed that he often “prepopulated” his expense reports before trips and simply forgot to revise them later. However, this explanation did not account for the findings of the audit, which indicated numerous expenses that were exactly $100 more than the actual amount incurred. As a result of the audit findings, Staples fired Noonan. Following the termination, a Staples executive sent an e-mail to the division in which Noonan worked, informing them of Noonan’s termination and stating that an investigation had determined that Noonan was “not in compliance” with Staples’s policies.
Noonan filed suit in federal court against Staples for defamation, based on the e-mail, and for breach of contract, arguing that Staples had denied him certain compensation and stock options in violation of his severance agreement and stock option plan. Staples countered that Noonan, fired for cause under the terms of the agreements, was not eligible to receive the benefits. Staples also disputed the defamation claim, arguing that the e-mail was factually accurate and sent for legitimate business reasons to emphasize the importance of compliance with company policies. The U.S. District Court for the District of Massachusetts agreed with Staples and dismissed Noonan’s claims. On appeal, the First Circuit affirmed, noting that truth was an absolute defense to defamation and rejecting Noonan’s claim that the broad distribution of the e-mail evidenced defamatory malice. The Court also adopted a narrow standard of review as to the contract claims, holding that Staples had not acted arbitrarily, capriciously, or in bad faith in terminating Noonan for cause in light of the audit findings regarding his expense reports.
Employers should take two lessons from the Noonan decision. First, well-drafted policies and agreements with clear language are helpful if enforcement becomes necessary. Second, take care in communicating with other employees about a co-worker’s termination. Companies which, like Staples, make factually accurate statements to an appropriate audience for valid business reasons are in the best position to defend those statements when necessary.