Employers who terminate employees “for cause” should take note of a recent Illinois appellate court decision upholding an $8 million verdict in favor of a terminated employee. In Leyshon v. Diehl Controls North America, et al., No. 1-09-1848 (1st Dist. Dec. 27, 2010), an executive sued his former employer for defamation after his termination “for cause” resulted in severe humiliation and inability to secure comparable employment. What started as a run-of-the mill termination turned into a costly headache for the employer.

Background Facts

Wallace Leyshon had been president of Diehl Controls North America, Inc. (“Diehl”) since 2001. Leyshon had a written contract with Diehl, which provided that he could be immediately terminated for “cause” without prior notice. “Cause” was defined in the contract to include “gross negligence, gross neglect of duties, gross insubordination and willful violation of any law applicable to the conduct of the Company’s business and affairs.”

In early 2006, Diehl’s Chief Financial Officer, Heinz Ruediger Kraemer, and its Chairman, Christoph Weigand, entered Leyshon’s office and announced that he was fired. At first, Kraemer and Wigand refused to give a reason for Leyshon’s termination. Leyshon then summoned a part-time human resources employee to serve as a witness, and again requested a reason for his termination. Weigand stated that Leyshon was “terminated for cause under the terms of [his] employment agreement.”

Trial Court Jury Verdict

Leyshon sued Diehl and Wigand, alleging breach of Leyshon’s employment contract, violation of the Illinois Wage Payment and Collection Act, and defamation. A witness testified that Weigand wanted Leyshon terminated “for cause” to avoid paying him the severance to which he otherwise would have been entitled under his contract. Based partly on the lack of any documentation supporting “cause’ for Diehl’s firing Leyshon, the jury found that Leyshon was not, in fact, terminated “for cause.” As a result, the jury returned a verdict in favor of Leyshon on his breach of contract and defamation claims. On the defamation claim, the jury awarded Leyshon $2 million in compensatory damages and $10 million in punitive damages. The trial court denied the defendants’ post-trial motion but granted their request to reduce the punitive damages award to $6 million.

Illinois Appellate Court Decision

On appeal, the defendants challenged the jury’s finding of liability on the defamation claim and the amount of damages awarded. They argued that the “for cause” statement was protected under the “innocent-construction rule,” because it could reasonably be innocently interpreted. The defendants also argued that they were protected by the “invited-defamation” defense, because the plaintiff “invited” Weigand’s statement and even summoned a witness to hear it. The defendants conceded, however, that they did not raise the invited-defamation defense until their post-trial motion.

The appellate court upheld the lower court’s decision. The court found that the “for cause” statement fell within the definition of defamation per se, because it was a statement “imputing an inability to perform or want of professional integrity in performing employment duties,” and “imputing a lack of ability or … otherwise prejudic[ing Leyshon] in his profession or business.” The court held that, given the context in which the statement was made, it could not reasonably be construed as having an innocent meaning.

The appellate court further held that invited-defamation is an affirmative defense, which concedes that all the elements of defamation are satisfied, but argues that the defamation is not actionable, because it was “invited.” As an affirmative defense, invited-defamation must be raised at the earliest opportunity. The defendants’ failure to raise the defense of invited-defamation prior to the jury verdict denied Leyshon the opportunity to respond to a defense that, if proven, would have been a complete defense to his defamation claim. Therefore, the court found that the defendants had forfeited the invited-defamation defense. The appellate court went on to uphold the $2 million in compensatory damages and $6 million in punitive damages awarded by the trial court.

Lessons for Employers

Leyshon provides several lessons for employers. First, before terminating employees “for cause,” employers should compile and document evidence supporting the “cause” alleged. If Diehl had such evidence, it may have been able to show that it did, in fact, have “cause” for terminating Leyshon. If so, Diehl would not have been liable for breach of contract or defamation. Second, employers should be careful not to disclose that a termination was “for cause” to anyone other than those in the company with a business need to know this information. Disclosing such information indiscriminately within the company or to anyone outside the company may invite defamation claims. By keeping the reason for the termination confidential, employers preserve their ability to defeat the “publication” requirement for a defamation claim. Finally, if litigation is filed, employers should be sure to plead all applicable affirmative defenses at the earliest opportunity. If Diehl had pled the invited-defamation defense at the outset, it may have prevailed on the defamation claim and thereby prevented the jury’s enormous damages award.