When is After-Acquired Evidence a Defense in Employment Law Cases?

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Is after-acquired evidence still a defense against employment law claims? What happens when an employee files a wrongful termination claim, and then the employer discovers (after the action has been filed) that there were grounds for a lawful termination?

In McKennon v. Nashville Banner, the US Supreme Court limited the use of after-acquired evidence as a defense to employment law claims including Title VII employment cases (claims of discrimination based on race, color, religion, sex, or national origin) and whistleblower claims.

Below, we will discuss the impact of McKennon and when after-acquired evidence is still useful in the defense of employment law claims, including:

-When after-acquired evidence is a complete bar to recovery in employment cases,

-When and how after-acquired evidence can be used to limit a plaintiff’s recovery,

Mt. Healthy and the distinction between mixed motives and a solely unlawful reason for termination, and

-Steps employers can take to protect themselves from frivolous claims and take advantage of the after-acquired evidence rule.

McKennon v. Nashville Banner – After-Acquired Evidence and Employment Law

In McKennon, the plaintiff was terminated at age 62 after thirty years of employment at the Nashville Banner company. She filed suit, alleging that she was terminated in violation of the Age Discrimination in Employment Act (ADEA) and asked for damages including back pay.

During litigation, the plaintiff admitted that she had removed copies of confidential financial documents – wrongdoing that would have been grounds for termination if the company had known about it…

The district court granted summary judgment for Nashville Banner, finding that the plaintiff’s misconduct and alternate grounds for termination completely barred her recovery, and the Court of Appeals affirmed, but the US Supreme Court reversed, holding that: (1) After-acquired evidence is not a complete bar to recovery, but (2) It should be considered when determining the specific remedy for the employer’s misconduct.

What remedies are appropriate when after-discovered evidence establishes legitimate reasons for the termination?

The Court found that, when an employee commits misconduct that would have resulted in a lawful termination if the employer had known about it, neither front pay nor reinstatement is an appropriate remedy.  Depending on the facts of the case, back pay might be appropriate, but it should be limited to backpay from the date of the unlawful termination through the date of discovery of the new information.

General compensatory damages, liquidated, damages, punitive damages, and statutory attorney fees are not necessarily limited, however.

What is the burden of proof to establish a defense based on after-acquired evidence?

When an employer finds newly discovered evidence, the employer must prove that the employee’s misconduct was of “such severity that the employee would have been terminated on those grounds alone had the employer known of it at the time of the discharge.”

The bottom line is that, in most cases, after-discovered evidence can no longer provide a complete bar to recovery, but it can reduce a plaintiff’s potential recovery in some areas including front pay, back pay, and the court’s ability to order reinstatement.

After-Acquired Evidence Rule in Texas: Trico Technologies

The Texas Supreme Court adopted the US Supreme Court’s reasoning in McKennon in Trico Technologies Corp. v. Montiel. In Trico, the Court held that the McKennon after-acquired evidence doctrine applied to a retaliatory discharge claim brought under the Texas Workers’ Compensation Act, finding that “evidence of an employee’s misconduct acquired after the employee was wrongfully discharged bars or limits the employee’s recovery when the employer would not have hired the applicant or would have terminated employment on legitimate and lawful grounds had the evidence been discovered before the discharge.”

After-acquired evidence of employee dishonesty (lying on an employment application, in this case) is not a complete bar to recovery, but it can limit the employee’s potential damages for retaliatory discharge.

Mt. Healthy: Mixed Motives for the Discharge?

Is after-discovered evidence of employee misconduct ever a complete bar to recovery?

In Mt. Healthy City Bd. of Ed. v. Doyle, the US Supreme Court held that, where there are two motives in an employer’s decision to terminate an employee, one lawful and one unlawful, and the lawful reason for termination would have justified the firing, the employee is barred from any recovery.

Both the US Supreme Court in McKennon and the Texas Supreme Court in Trico acknowledged that Mt. Healthy is still good law – in McKennon, for example, the US Supreme Court noted that Nashville Banner had “conceded its discrimination against the plaintiff” for purposes of summary judgment.

Because the plaintiff’s misconduct was not discovered until after she had been fired, “[t]he employer could not have been motivated by knowledge it did not have and it cannot now claim that the employee was fired for the nondiscriminatory reason.” The Court makes a distinction between evidence that proves the decision to terminate would have been justified and evidence that proves the decision would have been made.

  1. In “mixed motive” cases where the employee’s misconduct is discovered before the termination and was an actual basis for the termination, even if there is also a discriminatory intent, the plaintiff may still be completely barred from recovery.
  2. In “single motive” cases where the employee’s misconduct was discovered after the termination and could not have been an actual basis for the termination, the plaintiff is not completely barred but the recovery may be limited.

Steps Employers Can Take to Protect Themselves from Frivolous Employment Claims

What steps can your company take to get the most benefit from the after-acquired evidence doctrine?  Companies have a better chance of using the after-acquired evidence rule to (1) shut down employment claims or (2) limit the damages available to a former employee when they:

Maintain a clear policy on employee discipline: your company’s disciplinary policy should clearly state what constitutes misconduct, what actions are grounds for termination, what actions are grounds for discipline, and what the potential consequences are for violation of the disciplinary policy.

Maintain a clear policy on hiring criteria: so there is no question whether there was a legitimate basis for the hiring decision.

Keep careful records of employee misconduct: all instances of employee misconduct should be carefully documented, and evidence should be preserved – having the evidence readily available can make the difference between 1) no recovery, 2) partial recovery, or 3) full recovery by the plaintiff.

Documenting employee work performance: for the after-acquired evidence doctrine to apply, the misconduct (or unsatisfactory job performance) must be severe enough to result in termination. Careful documentation of employee work performance will provide the evidence needed to establish poor job performance when an employee claims that there was discrimination.

Please feel free to contact one of our Murray Lobb attorneys to obtain our advice regarding employment law matters including defense against claims of employment discrimination and representation for investigations and proceedings before the Texas Workforce Commission, EEOC, and Department of Labor. We also remain available to help you with all your general corporate, construction law, business, and estate planning needs.