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South Carolina Supreme Court Rules After-acquired Evidence of Employee Misconduct May Bar Breach of Contract Lawsuit

In Lewis v. Fisher Service Co., a January 1998 decision, the South Carolina Supreme Court held that "after-acquired evidence" of misconduct by a former employee may completely bar any recovery in a breach of contract lawsuit against the former employer. In reaching this result, the court distinguished a 1995 U.S. Supreme Court ruling that after-acquired evidence of misconduct could limit only the remedies available to former employees in discrimination cases, and could not completely bar recovery.

After-Acquired Evidence

After-acquired evidence is proof of employee misconduct discovered after an employee's termination. Employers often first learn of employee misconduct during the discovery phase of an employee's wrongful termination lawsuit challenging the original reason for the termination. Resume fraud is a common example of misconduct that may be discovered after an employee's termination.

Once they obtain after-acquired evidence, employers typically argue that if they had known about the misconduct at the time it occurred, the employee would have been terminated in the absence of, or despite, a discriminatory or improper reason.

In the 1995 U.S. Supreme Court case, McKennon v. Nashville Banner Publishing Co., the Banner fired McKennon, a 62-year old employee who had been employed for 30 years. McKennon then sued the Banner, alleging age discrimination. During her deposition in the lawsuit, McKennon testified that, prior to her termination, she copied and removed confidential documents about the Banner's financial situation, in violation of company policy.

Citing this after-acquired evidence of wrongdoing, the Banner argued that it would have terminated McKennon if it had known about her misconduct, and asked the Court to throw out her lawsuit.

Bar to Liability Would Undermined Congressional Intent

The McKennon Court recognized that a plaintiff with "dirty hands" normally cannot turn to the law for help. The Court noted, however, that it had not applied that rule "where Congress authorizes broad equitable relief to serve important national policies," such as deterring employment discrimination.

The Court concluded that former employees who engage in wrongdoing should not be awarded front pay or reinstatement and may only be awarded back pay from the date of the illegal discharge to the time their misconduct was discovered. According to the Court, a total bar to liability for discrimination would "undermine the [Age Discrimination in Employment Act's] objective of forcing employers to consider and examine their motivations, and of penalizing them for employment decisions that spring from age discrimination."

In the new South Carolina case, Lewis filed a breach of contract suit in federal court, claiming that his termination did not comply with the progressive discipline procedures in Fisher Service Co.'s employee handbook. During his deposition in the lawsuit, Lewis testified that, before his termination, he secretly tape recorded interviews with management.

At trial, Fisher's general manager testified that secretly tape recording a conversation with a member of management constituted serious misconduct, which would have justified Lewis' termination. When the jury decided in Lewis' favor, Fisher pointed to the unauthorized tape recordings and asked the court to set aside the verdict.

After-Acquired Evidence Doctrine Not Applicable in Contract Cases

The federal court then asked the South Carolina Supreme Court to explain how it would apply the after-acquired evidence doctrine as a defense in an employee handbook case. The South Carolina Supreme Court concluded that the public policy concerns about using after-acquired evidence as a complete bar in discrimination cases were not applicable to contract disputes that simply involve the rights of individual parties.

According to the Lewis decision, in breach-of-contract cases, after-acquired evidence will operate as a complete bar as long as the employer can show, by "clear and convincing" proof, that the employee misconduct would have justified the employee's termination on that ground alone if the employer had known about it at the time of discharge.

The North Carolina courts have not applied the after-acquired evidence doctrine in an employment-related lawsuit. However, the McKennon case should apply to all discrimination cases brought in federal or state courts, whether based on federal discrimination laws or the public policy expressed in the North Carolina Equal Employment Practices Act.

In Conclusion

After-acquired evidence can be a powerful defense, especially in breach-of-contract suits, because employers can escape all liability if the evidence is strong enough. The McKennon and Lewis cases underscore the importance of taking time in the discovery phase of litigation to carefully investigate the disputed issues and the plaintiff's employment history.

Considering the prevalence of resume fraud, we recommend that all employee applications contain a statement signed by the applicant which verifies that all information provided to the employer is truthful and accurate.

The statement should also inform applicants that they may be terminated for misrepresenting qualifications, work experience, or any other information upon which the employer relies in deciding whether to hire an applicant.

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