Defamation Based on “Allegations”

September 30th, 2011 by JBWK

In an interesting opinion released this week from the Eastern District of Virginia, the court held that an employer’s statement that a former employee/financial advisor was discharged “after allegations were made that accused him of” violating investment-related statutes or rules was not defamatory.

Wells Fargo Advisors, LLC filed a required response to a securities-industry employee-termination questionnaire. The termination report noted that he had been discharged for failing to manage his personal financial accounts; it was later supplemented to add allegations of check kiting. In response to a question posed in the questionnaire, Wells Fargo Advisors affirmed that the employee had been “accused of” investment-related violations. The employee argued that the employer’s response created the “innuendo” that he had, in fact, committed investment-related violations.

While principally deciding that the employee’s reason for termination was, in fact, an investment-related violation and therefore not defamatory, the court also discussed the distinction between allegations and actual occurrences. The opinion rejected the employee’s theory of “innuendo”, holding that the employer’s response that the employee had been “accused of” investment-related violations does not carry any implication that he had, in fact, violated any relevant standard. In other words, the truth of an allegation being made is true (and therefore cannot be defamatory) without any regard to whether the underlying allegation is actually true.

This presents an interesting scenario for employers faced with employees who have been accused of inappropriate actions that have not been fully substantiated. The court essentially allows employers to state, for instance, that a former employee was discharged after “being accused of stealing”, even if the underlying accusation is false, while falsely stating that an employee was discharged simply “for stealing” can be defamatory. Employers therefore have to carefully consider any communications in situations where allegations are made that may not be fully investigated or substantiated.

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