A recent lawsuit filed by Bon-Ton Stores, Inc. in the Middle District of Pennsylvania attempts to affirmatively use the “after acquired evidence rule” to avoid paying an executive severance under an Executive Severance Pay Plan.
In the lawsuit, Bon-Ton seeks, among other things, a declaration that its former Senior VP Gary Pralle was terminated “for cause” as defined in the parties’ Executive Severance Pay Plan. Bon-Ton terminated Pralle based on his failure to be present in his territory and supervise his stores, his misrepresentation of commuting expenses as business expenses, and his submission of “numerous extravagant expenses for lodging, meals and alcohol” in excess of Bon-Ton’s policies.
Bon-Ton alleged that after terminating Pralle, it searched his emails and discovered “pornographic materials” and “racial slurs.” Seeking to invoke the “after acquired evidence rule,” Bon Ton alleged that had it discovered these pornographic and racist emails prior to terminating Pralle, it would have terminated Pralle for violation of Bon-Ton’s conduct policies. Bon-Ton seeks a declaration that the termination was for “cause” as provided in the Executive Severance Pay Plan, which would excuse it from paying Pralle severance.
The “after acquired evidence rule” often comes up when an employer learns during discovery that an employee failed to disclose negative information or lied on a job application. Bon-Ton’s affirmative use of the rule may allow it to avoid paying Pralle severance. In a similar case in 2005, the Tennessee Supreme Court found that under that state’s law, after acquired evidence can be a defense to a breach of contract suit by an employee seeking severance, if the employer can show by a preponderance of the evidence at trial that it would have terminated the employee had it known of the misconduct. (See Teter v. Republic Parking System, 2005 WL 316518). However, Bon-Ton could have avoided the expense of litigation had it engaged in a review of Pralle’s emails before terminating him, making sure it acted consistent with its policies and not for any discriminatory purpose.