Heightened Risk of Slander in Employment Relationships in North Carolina

Do you think conducting a negative employee performance review and communicating your findings to a senior vice president in your company can expose you and your employer to liability for slander? A recent Western District of North Carolina case suggests that it can in certain situations. The Western District’s holding in Sirona Dental, Inc. v. Smithson, 2016 WL 1263348, at *1 (W.D.N.C. Mar. 31, 2016), might change how North Carolina employers approach aspects of employee evaluations and other intraoffice communications about employees. In short, the Sirona Dental court held that when defamatory statements are communicated to other employees who are distinct and independent from the employment review process, those statements could support a claim for slander against both the company and the individual making the statements.

To prove slander in North Carolina, a plaintiff must show that a defendant made false and defamatory statements about the plaintiff to a third party and that the statements harmed the plaintiff. Statements made in the employment context typically are not actionable as slander for at least three reasons. First, a slanderous statement must be false, and as long as employers say true things about their employees, such statements cannot constitute slander. Second, intraoffice communications are “internal” and not really made to a “third party.” Third, as long as the communications are really about an employee’s employment, the statements usually enjoy protection under a qualified privilege. After Sirona Dental, however, North Carolina employers should consider carefully who within a company really needs to see employee reviews and evaluations, especially harshly critical ones. To make out a claim for slander against both the employer and the person making the statement, an employee need only allege that a false statement was circulated beyond a “need to know” basis and that malice motivated the statement.

Background and Holding in Sirona Dental

Defendant John Smithson worked for Sirona Dental, Inc. (“Sirona”) as a director of marketing until being fired in September 2014. Among other allegations, Sirona contended Smithson violated Sirona’s Code of Business Conduct by establishing a fraudulent vendor relationship with his wife without the company’s knowledge or approval. Sirona sued both Mr. and Mrs. Smithson in December 2014 under various causes of action. In January 2015, Sirona obtained a preliminary injunction against Mr. Smithson to prevent him from disclosing Sirona’s confidential and proprietary information.

In June 2015, the Smithsons fired back in earnest. They filed an Answer and Amended Counterclaims, as well as a Third Party Complaint against Mr. Smithson’s former supervisor and Sirona’s President, Michael Augins. The Smithsons asserted claims for slander against Sirona and Mr. Augins on the grounds that Mr. Augins approved the vendor relationship with Mrs. Smithson and acted with actual malice when he falsely accused the Smithsons of fraudulent acts to others within Sirona and its parent company. Specifically, the Smithsons alleged that Mr. Augins – and through him, Sirona itself – published false statements to other Sirona executives that: (i) Mr. Smithson had “secretly” employed his wife; (ii) Mr. Augins never approved the vendor relationship with Mrs. Smithson; (iii) Mr. Smithson was “an untrustworthy employee, a fraudulent supervisor of employees, [and] a thief of company resources;” and (iv) Mr. Smithson had “embezzled or misused funds.” Sirona Dental, 2016 WL 1263348 at *2. Mr. Augins apparently made these statements either at the commencement of or during an internal investigation that ultimately resulted in the Smithsons’ terminations.

Slander Law in North Carolina and in the Employment Context

Slander consists of four elements: (i) a defendant must make false and defamatory statements; (ii) the statements must be about or concerning a plaintiff; (iii) the statements must have been published (or communicated) to a third party; and (iv) the statements must have harmed a plaintiff. In addition, to be defamatory, a statement must have been: (i) made without justification or lawful purpose; (ii) calculated to injure a plaintiff’s reputation; and (iii) untrue. The law holds a statement can be defamatory per se (meaning basically that damage is automatically assumed) if it asserts that a person is ineffective at their job or otherwise harms their reputation in business. The Smithsons, for example, alleged slander per se.

Slander’s publication element – the requirement that a statement be “published” to a third party – carries particular weight in the employment context. Some North Carolina authority holds that intraoffice communications are not communications to a third party, and thus, are never actionable. The Sirona Dental court, however, found that intraoffice communications could constitute publication when the defamatory statements were made to employees not involved in the process by which the statements were produced. The Sirona Dental court acknowledged that some district (or other federal trial) judges in North Carolina have held that intraoffice communications are just between parts of the same entity, and thus, not published for purposes of North Carolina slander law. Judge Robert Conrad, however, in Sirona Dental held that the better reasoning was in Satterfield v. McLellan Stores Co., 215 N.C. 582, ---, 2 S.E.2d 709, 711 (1939), a North Carolina Supreme Court opinion. Satterfield essentially relied on a New York case from 1898, Owen v. Ogilvie Pub. Co., 32 App. Div. 465, 53 N.Y.S. 1033 (App. Div. 1898), which held that when the duties of the second employee to whom the slander is communicated are “distinct and independent of the process by which the libel was produced, [that second employee] might well stand in the attitude of a third person through whom a libel can be published.” See Sirona Dental, 2016 WL 1263348 at *3. In short, if another employee did not need to be involved in the process (like, for example, an employment evaluation or an internal investigation) that resulted in the false statement, then making the false statement to such an employee is like making it to a third party.

The Sirona Dental court brings renewed attention to whether intraoffice communications within a corporation constitute “publishing” a statement. In 2011, the North Carolina Court of Appeals also relied on Satterfield to conclude that communications within a university could be considered “published.” In White v. Trew, 217 N.C. App. 574, 581, 720 S.E.2d 713, 720 (2011), rev’d on other grounds, 366 N.C. 360, 736 S.E.2d 166 (2013), the Court of Appeals found that “intra-office communications can be published in terms of defamation if the individual who reads the communications is independent of the process by which the communications were produced.” In White, both plaintiff and defendant worked for the same state university, where the defendant was head of the department in which the plaintiff worked. The defendant produced an annual review containing defamatory statements about the plaintiff. Defendant then shared the annual review with the dean of the department and the university’s in-house counsel. In finding that the review had been “published” to a third party, the Court of Appeals stated: “[D]efendant produced the annual review on his own. He did not use the services of the Dean of Engineering or in-house counsel in drafting the review. Those parties only became involved after the review had been finished. Following the language endorsed by Satterfield, they were ‘distinct and independent of the process by which the statements were produced.’” White, 217 N.C. App. at 581, 720 S.E.2d at 720.

White sheds light on what it means for an employee to be “distinct and independent of the process by which the statements were produced.” At first blush, someone in an academic department sharing a review with his dean and his in-house lawyer seems pretty “internal” and not publication to a third party. When, however, the employee – whether a dean, a lawyer or someone higher up in your own company – has no actual need to be included in the communication, then disclosure of that statement could be publication. Based on Sirona Dental, Satterfield and White, North Carolina employers should be diligent in making sure that they only disseminate communications which could be construed as defamatory to employees who are legitimately part of the process through which the statements are generated or made. Most often, this best practice will mean in the employee evaluation or internal investigation context that these statements should only be shared on a need to know basis within specific and established reporting relationships because communication to any employee outside of these processes could constitute publication.

Qualified Privilege as a Defense to Slander

Employers still enjoy protection, however, from liability for even slanderous, published statements if the usual qualified privilege applies. Such a qualified privilege does not prevent the statement from being actionable, but it instead provides the employer with an affirmative defense that bars any liability. A slanderous statement is privileged if it was made: “(1) in good faith, (2) on subject matter (a) in which the declarant has an interest or (b) in reference to which the declarant has a right or duty, (3) to a person having a corresponding interest, right, or duty, (4) on a privileged occasion, and (5) in a manner and under circumstances fairly warranted by the occasion and duty, right or interest.” Sirona Dental, 2016 WL 1263348 at *4. When an employer can show that the statements were qualifiedly privileged, a presumption is created that the defamatory statements were made in good faith and without malice. In North Carolina, statements typically made during an evaluation of an employee or an internal investigation are presumed to be protected by such a qualified privilege.

In Sirona Dental, the presumption of qualified privilege applied because Mr. Augins supposedly made the slanderous statements in connection with an internal investigation. The presumption, however, always can be rebutted by a showing of actual malice. Such malice can be shown by evidence of the defendant’s ill-will or hostility towards the plaintiff or by evidence that the defendant knew the statements were false or made with reckless disregard for their truth or falsity. Although a presumption of privilege existed in Sirona Dental, the court found that the Smithsons sufficiently alleged actual malice by Mr. Augins in making the various statements about them. In particular, the Smithsons alleged that Mr. Augins knew the statements he made to the other Sirona employees and affiliates were false and that the statements were motivated by Mr. Augins’ ill-will towards the Smithsons. According to the Smithsons’ allegations, Mr. Augins’ personal malice arose from his divorce and his desire to prevent Mr. Smithson from divulging potentially “devastating” financial information about Sirona that supposedly occurred under Mr. Augins’ supervision. Sirona Dental, 2016 WL 1263348 at *4.

The actual malice exception to qualified privilege highlighted by Sirona Dental is not a new principle of law, nor will it commonly arise within the employment context. So long as employee reviews are conducted in a professional manner, and are not motivated by an employee’s personal bad feelings towards another employee, a company will likely be able to invoke qualified privilege as a defense against slander claims raised by former employees. Sirona Dental also illustrates, however, that sufficient allegations of such malice are all that is necessary to allow a lawsuit to move beyond the pleadings stage and enmesh an employer in the costly and time-consuming discovery phases of litigation. After a few months of document discovery and depositions, Sirona may (or may not) be able to establish that no evidence exists of actual malice by Mr. Augins and get the slander claims dismissed at summary judgment and still avoid a trial. Because, however, disgruntled employees can make allegations relatively easily, discovery in litigation is often extremely expensive, and “an ounce of prevention is worth a pound of cure,” employers should ensure to the extent possible that any indicia of personal animus is removed from any employee evaluation or internal investigation process.

Takeaways from Sirona Dental

Sirona Dental demonstrates that employers must be careful about who within their organizations are privy to employment reviews and other communications in which an employee or their job performance is being criticized. Even when an individual is in a position of authority, if they are not involved in the actual process during which the statements are made, communicating such statements to them could constitute publication of defamatory statements supporting a claim for slander. Employers in North Carolina should limit these kinds of communications only to those employees within the company who are involved in the process, thereby limiting their exposure to liability for slander and hopefully avoiding the often cumbersome process of defending their actions in court.