Sometimes after a discharge, the employer discovers previously unknown “bad acts” by the ex-employee that constitute a sound business reason for discharge. If the former employee sues, the employer wants to use evidence of that misconduct: (1) to justify the firing; (2) to cut off damages; or (3) to push the former employee off the “victim’s pedestal of virtue” the plaintiff’s counsel has erected before the jury.

However, is such “after-acquired” evidence really relevant to the case, since when the employee was fired the employer had no knowledge of that wrongdoing? Even if relevant, what legal effect will it have on the outcome?

The “clean” after-acquired evidence case, where the previously unsuspecting employer uncovers dischargeable misconduct after the employee’s firing, is well represented by the experience of Christine McKennon and the Nashville Banner Publishing Co, whose dispute over these issues reached the U.S. Supreme Court in a case that has been pointed to as a boundary marker for after-acquired evidence use by some employment lawyers ever since.

McKennon was a 62-year-old, 30-year employee of the defendant newspaper who was laid off; the defendant said, for financial reasons. She claimed, however, that the newspaper’s given reason was a pretext to disguise age discrimination. In the course of discovery, the newspaper’s lawyers learned that McKennon had taken confidential company financial information and disclosed it to her husband. Her case made it to the Supreme Court on the question of what, if any, impact that after-acquired misconduct evidence should have had on her suit.

For purposes of the Supreme Court’s ruling it was assumed: (1) that McKennon had been illegally fired because of her age; and (2) that her mishandling of the confidential information would have been a legitimate reason to discharge her had the defendant know about it prior to her termination. McKennon v. the Nashville Banner Publishing Co., 513 U.S. 352 (1995).

Equitable Relief

The McKennon Court articulated and considered the balance that exists between the national policies prohibiting employment discrimination and the employer’s lawful right to manage its business, as well as the equities that rested with the employer as a result of the employee’s wrongdoing. The court concluded that while McKennon’s misconduct should not be ignored in fashioning a remedy even for proven discrimination, the national employment discrimination policies required that she be afforded some relief.

The result was to preclude equitable relief in the form of reinstatement or its substitute, front pay, and to cut her back pay damages off as of the date that the employer learned of the misconduct. The court’s ruling has been widely applied beyond age discrimination suits to cases brought under other anti-employment discrimination laws. However, viewing McKennon as creating a bright line for the use of after-acquired evidence would be short-sighted.

As mentioned there are several reasons for the defense to present after-acquired evidence: justification for a termination, limiting damages and countering sympathy for the plaintiff. McKennon only serves to limit recovery. If the damages and liability portions of the case are bifurcated, the jury may not hear the misconduct evidence until after the liability determination is made, and perhaps not at all.

There are at least three instances, however, where the jury might hear the after-acquired evidence during the liability phase. The first is where the plaintiff pleads that her discharge was an employment contract breach. If the after-acquired evidence proves the fact of a previous breach on the plaintiff’s part, that breach may excuse the employer’s failure to perform. Second, the credibility of a plaintiff’s witness testifying to the plaintiff’s sterling work performance, job dedication, loyalty, etc., might be impeached by after-acquired misconduct evidence. A third situation arises where the employer suspects misconduct, fires the employee based on that suspicion and later acquires evidence confirming that the suspicion was correct. Using after-acquired evidence in any of these scenarios is invariably a matter of contention, because of a perceived conflict between the prejudicial effect of allowing the introduction of such evidence and the strong national antidiscrimination policy considerations outlined in McKennon.

School Demotion Case

The most intriguing, and perhaps the most controversial, of these uses of after-acquired evidence is reliance upon such evidence to prove that an employer’s original suspicions of misconduct were correct; that the decision to discharge was justified. This is use of the evidence to reinforce the legitimacy of an employer’s articulated non-discriminatory business reason for the discharge: It is being used to defeat liability, not just to limit the plaintiff’s remedies. It has been argued that McKennon and its articulated policy considerations block such use of after-acquired evidence. In a slightly different context, however, the U.S. Court of Appeals for the Second Circuit approved just such usage to avoid liability. Gant v. Wallingford Board of Education, 195 F. 3d 134 (2d Cir. 1999).

Gant was an education case where it was claimed a child had been demoted from first grade to kindergarten because of racial discrimination. The defendants contended that the child was academically unprepared for first grade and that this was the sole reason for the demotion. Evidence that came into the defendants’ possession after the demotion decision had already been made confirmed their assessment of the plaintiff’s academic unpreparedness.

The defendants argued that the after-acquired evidence should be considered by the fact-finder, because that evidence did not, as it had in McKennon, provide a reason for the child’s demotion that had been unknown when the school acted, but only served to confirm that the defendants’ pre-transfer assessment of the child’s academic problems was correct. The Second Circuit agreed. It rejected the plaintiff’s argument that McKennon barred the use of such evidence to judge a defendant’s motivations.

The Gant Court’s rationale can and should be applied to employment cases as well. So long as the defendant can establish a foundation that it acted on suspicions of wrongdoing that were confirmed, rather than first raised, by after-acquired evidence, it should be allowed to rely upon that evidence to demonstrate to the jury that its reasons for acting were legitimate and not discriminatory. Such use of the evidence in no way violates the policies that underlay the anti-employment discrimination statutes. In fact, as one goes higher up the chain of corporate command and authority, permitting use of such evidence supports equally important policies regarding corporate governance, accountability and responsibility; the post-Enron scandal policy demands that led Congress to pass Sarbanes-Oxley.

It is contradictory to require that responsible corporate officials and boards act to prevent financial and business practice abuses, often by removing company executives, but not to permit them to rely on after-acquired evidence that confirms the well-founded suspicions that caused an executive termination if they are sued by that ex-employee. It presents those corporate actors with a Hobson’s choice: they may either wait until incontrovertible proof of misconduct is available before taking any adverse employment action, by which time considerable additional damage may be done to the business and its shareholders, or they may act expeditiously but be barred from presenting the best evidence of the ex-employee’s malfeasance to a jury considering his claims of unlawful discrimination. Often such evidence is essential to establishing the legitimate, non-discriminatory nature of the company’s reason for taking action. Refusing to permit the use of such evidence is not only a simplistic interpretation of McKennon, it runs contrary to the national policies of enforcing corporate accountability that have become so central to today’s concepts of corporate governance.

Both plaintiff and defense counsel in cases where the after-acquired question arises need to consider how and where this evidence might be brought into court for the jury’s review. The issue is strategic and should not be relegated to last minute pre-trial consideration. It can affect pleading issues and the bifurcation question, as well as how the plaintiff’s job performance narrative will be presented.•