Davis Adv. Sh. No. 3
S.E. 2d
THE STATE OF SOUTH CAROLINA
In The Supreme Court
Douglas Lewis, Plaintiff,
V.
Fisher Service
Company, Defendant.
On Certification from
the United States District Court,
District of South Carolina
Joseph F. Anderson, Jr.,
United States District Judge
Opinion No. 24745
Heard October 7, 1997 - Filed January 12, 1998
CERTIFIED QUESTIONS ANSWERED
- Herbert W. Louthian and Herbert W. Louthian, Jr.,
- both of Louthian & Louthian, of Columbia, for
- plaintiff.
- Leigh M. Nason and Charles T. Speth, II, both of
- Haynsworth, Baldwin, Johnson and Greaves, P.A.,
- of Columbia, for defendant.
TOAL, A.J.: This matter is before the Court on certification from the
United States District Court to answer questions related to the defense of
after-acquired evidence in employee handbook breach of contract cases.
p. 54
LEWIS v. FISHER
Factual/Procedural Background
In 1984, Douglas Lewis was hired as a machinist by Fisher Service
Company ("Employer"). On the day Lewis began working for Employer, he
received a copy of a manual entitled "Practices and Policies." The manual
provided for a progressive discipline policy, but also contained an override
provision stating that when an employee's conduct violated "very serious and
widely-recognized behavior standards," the employee could be terminated on
the first offense.
In April 1991, Lewis applied for a position as a quality control inspector
and was interviewed by supervisor Andy Simpson. Using a pocket tape-
recorder, Lewis tape-recorded his meeting with Mr. Simpson. The tape of the
interview was later played in the break area for other employees. When
Employer learned of the taping incident, it determined that Lewis had
violated "very serious and widely-recognized behavior standards." Employer
terminated him without engaging in progressive discipline.
As a result, Lewis brought a breach of contract action against
Employer. In his complaint, Lewis contended that Employer demoted and
then discharged him in violation of the progressive discipline policies
contained in Employer's employee handbook. See Small v. Springs Industries,
Inc., 292 S.C. 481, 357 S.E.2d 452 (1987). The case was initially tried in
June 1993.
At trial, Lewis contended that he told Simpson the interview would be
taped. Lewis further claimed that a fellow employee had played the tape in
the break area for other employees to hear. Employer asserted that the
taping was done surreptitiously and that it was Lewis who played the tape
in the break area.
The jury returned a verdict in favor of Lewis in the amount of $400,000
actual damages, representing back pay and front pay. For reasons unrelated
to this certification, the Court set aside the first verdict and ordered a new
trial on both liability and damages. The case was tried again in June 1994,
and the second jury awarded Lewis $355,000.
After the second verdict, Employer moved for a judgment as a matter
of law, or, alternatively, for a new trial. Employer argued that the
surreptitious taping of an interview with a superior, coupled with the later
playing of that tape for other employees, justified Lewis's immediate
termination. The Court found that the surreptitious taping of an employee
p. 55
LEWIS v. FISHER
interview was sufficiently serious to warrant a bypass of the progressive
discipline policy contained in Employer's employee handbook. The Court,
viewing the evidence in the light most favorable to Lewis, determined that
(1) the jury could have found that Lewis told Simpson the tape was being
made, and (2) the jury could have found that another employee, and not
Lewis, played the tape for other employees.
After determining that the verdict should not be disturbed, the Court
was then called upon to address the after-acquired evidence doctrine.
Subsequent to Lewis's initiation of this action, Employer learned during a
deposition that Lewis had engaged in other acts of misconduct justifying his
termination. Specifically, Lewis admitted in his deposition that he had
surreptitiously taped one or perhaps two other interviews with members of
management. Unlike the Simpson episode, however, it is undisputed that
Lewis never told the other parties to these conversations that they were
being taped. Lewis admitted that before his termination he had secretly
recorded a conversation with general manager David Suk, without Suk's
knowledge, and had "probably" surreptitiously recorded a conversation with
shop manager Jeff Klatt. At trial, Suk testified that the act of secretly tape-
recording a member of management constituted serious misconduct. He
further testified that he was unaware Lewis had recorded conversations with
him and that had he known Lewis was making the surreptitious recordings,
he would have immediately terminated Lewis.
A determination of whether, and to what extent, South Carolina
recognizes the after-acquired evidence doctrine in employee handbook cases
would enable the federal District Court to dispose of the post-trial motion
now pending before it. Accordingly, the following questions have been
certified to this Court:
1. Does South Carolina recognize the after-acquired evidence doctrine
as a defense to an action brought by an employee terminated in violation of
the progressive discipline policy of an applicable employee handbook?
2. If the answer to question one is in the affirmative, in what form and
to what extent is the defense of after-acquired evidence recognized in South
Carolina? Specifically, may the doctrine be used to avoid liability altogether,
or to avoid liability from the date of discovery forward (thus allowing a back
pay award from the date of termination until the date of discovery), or to
avoid liability from the date of judgment forward (thus allowing a recovery
of back pay from the date of termination until the date of judgment)?
p. 56
LEWIS v. FISHER
Law/Analysis
The questions certified in this action ask us to determine whether, and
to what extent, the after-acquired evidence doctrine implies in employee
handbook breach of contract actions. The answers to these questions need
to be sought within the context of the historical development of the after-
acquired evidence doctrine and the rationales underlying its application.
A. Development of the After-Acquired Evidence Doctrine
Summers v. State Farm Mutual Automobile Insurance Company, 864
F.2d 700 (10th Cir. 1988) provides a starting point for consideration of the
after-acquired evidence doctrine. In this seminal case, an employee brought
an action against State Farm for discrimination on the basis of age and
religion. In the course of discovery, State Farm found evidence of 150
instances where the employee had falsified records. It sought to have this
evidence admitted against employee. On appeal, the Tenth Circuit held that
such after-acquired evidence could be admitted to bar relief for the employee.
In reaching its conclusion, the Court gave the following analogy that has
since been often cited in discussions about the after-acquired evidence
doctrine: "The present case is akin to the hypothetical wherein a company
doctor is fired because of his age, race, religion, and sex and the company,
in defending a civil rights action, thereafter discovers that the discharged
employee was not a 'doctor.' In our view, the masquerading doctor would be
entitled to no relief ......" Summers, 864 F.2d at 708.
In Wallace v. Dunn Construction Company, 968 F.2d 1174 (11th Cir.
1992), the Eleventh Circuit rejected the Summers rule that after-acquired
evidence may "effectively provide an affirmative defense to Title VII liability."
Wallace, 968 F.2d at 1181. Wallace declared that the Summers rule was
"antithetical to the principal purpose of Title VII -- to achieve equality of
employment opportunity by giving employers incentives to self-examine and
self-evaluate their employment practices and to endeavor to eliminate, so far
as possible, employment discrimination." Wallace, 968 F.2d at 1180 (internal
citations omitted). Instead, the Eleventh Circuit held that after-acquired
evidence may be allowed on the issue of damages.
In 1995, the split between the federal circuits was resolved by the
United States Supreme Court in McKennon v. Nashville Banner Publishing
Company, 513 U.S. 352, 115 S. Ct. 879, 130 L. Ed. 2d 852 (1995). McKennon
involved an action brought under the Age Discrimination in Employment Act
of 1967 ("ADEA"). The Supreme Court noted that the ADEA and Title VII
p. 57
LEWIS v. FISHER
share common substantive features and also a common purpose: the
elimination of discrimination in the workplace. Deterring discrimination and
compensating for injuries caused by prohibited discrimination are two
objectives of these statutes. The McKennon Court wrote that "It would not
accord with this scheme if after-acquired evidence of wrongdoing that would
have resulted in termination operates, in every instance, to bar all relief for
an earlier violation of the Act." McKennon, 513 U.S. at 358,, 115 S. Ct. at
884, 130 L. Ed. 2d at 861. The Supreme Court unanimously reversed the
lower court, which had allowed after-acquired evidence to serve as a complete
bar to recovery.
McKennon rejected the use of after-acquired evidence on the issue of
liability; however, it did consider the evidence relevant to the remedy to be
ordered: "The employee's wrongdoing must be taken into account, we
conclude, lest the employer's legitimate concerns be ignored."1 McKennon,
513 U.S. at 361, 115 S. Ct. at 886, 130 L. Ed. 2d at 863. The Supreme
Court set the following threshold standard for admitting after-acquired
evidence:
- Where an employer seeks to rely upon after-acquired evidence of
- wrongdoing, it must first establish that the wrongdoing was of
- such severity that the employee in fact would have been
- terminated on those grounds alone if the employer had known of
- it at the time of the discharge.
McKennon, 513 U.S. at 362-63, 115 S. Ct. at 886-87, 130 L. Ed. 2d at 864.
We adopted the McKennon standard in Baber v. Greenville County, __
S.C. __, 488 S.E.2d 314 (1997) in the context of a whistleblower's suit.
Baber had brought an action, under the Whistleblower's Act, alleging he was
terminated as a result of his refusal to delete portions of an audit report he
had prepared detailing the County Tax Collector's waiver of penalties for
certain parties. The trial court allowed the County to introduce evidence
acquired during discovery concerning Baber's poor job performance on the tax
audit; however, the court charged the jury not to consider the after-acquired
1 The Court stated that although as a general rule reinstatement and
front pay would not be appropriate, backpay is possible in instances of
employee misconduct discovered after termination. The calculation of the
backpay is from "the date of the unlawful discharge to the date the new
information was discovered." McKennon, 513 U.S. at 362, 115 S. Ct. at 886,
130 L. Ed. 2d at 864.
p. 58
LEWIS v. FISHER
evidence. On appeal, we accepted the McKennon test for determining
whether after-acquired evidence may be used to limit employee damages. We
concluded that the wrongdoing was not of such severity that the employee in
fact would have been terminated on those grounds alone if the employer had
known of it at the time of the discharge.
A number of other jurisdictions have also followed the McKennon
approach of allowing, in certain cases, after-acquired evidence on the issue
of damages. Recently, the Texas Supreme Court adopted the McKennon test,
holding that after-acquired evidence can serve as a limitation on an
employee's recovery for a retaliatory discharge claim brought under the Texas
Workers' Compensation Act. Trico Technologies Corp. v. Montiel, 949 S.W.2d
308 (Tex. 1997). Likewise, in Walters v. United States Gypsum Company,
537 N.W.2d 708 (Iowa 1995), the Iowa Supreme Court adopted the McKennon
standard for purposes of retaliatory discharge/discrimination actions. The
employee had claimed that she had been discharged from her employment
because she had filed a civil rights complaint against her employer. In an
action involving sexual harassment, constructive discharge, and retaliation,
the Michigan Court of Appeals recently reaffirmed its rule that an employee
is not barred from all relief as a matter of law for after-acquired evidence of
misconduct, but that any wrongdoing could be reflected in the nature of the
relief awarded to him. Horn v. Dep't of Corrections, 548 N.W.2d 660 (Mich.
Ct. App. 1996). See also Thompson v. Better-Bilt Aluminum Prods. Co., 927
P.2d 781 (Ariz. Ct. App. 1996)(finding that public policy does not preclude,
in action involving wrongful termination for filing of a workers' compensation
claim, an employer from presenting after-acquired evidence of application
fraud when the jury is instructed as to the significance of such evidence on
the measure of damages); Barlow v. Hester Industries, Inc., 479 S.E.2d 628
(W. Va. 1996)(adopting the McKennon standard for employment discrimina-
tion cases).
Courts, however, have not been unanimous in their adoption of the
McKennon approach. Some jurisdictions have held that after-acquired
evidence can serve as a complete bar to employee claims. In Crawford
Rehabilitation Services, Inc. v. Weissman, 938 P.2d 540 (Colo. 1997)(en banc),
the Colorado Supreme Court declined to apply the limitations placed on the
after-acquired evidence doctrine by McKennon to claims for breach of implied
contract and promissory estoppel. It held that after-acquired evidence of
resume fraud may provide an employer with a complete defense to such
claims. Similarly, in Gassman v. Evangelical Lutheran Good Samaritan
Society, Inc., 933 P.2d 743 (Kan. 1997), the court held that as to ordinary
wrongful discharge breach of employment contract cases not involving any
p. 59
LEWIS v. FISHER
overriding governmental interest, the limits placed on the after-acquired
evidence doctrine by McKennon are not applicable, and the employee is not
entitled to any relief if the employer can establish after-acquired evidence
sufficient for termination. See also Camp v. Jeffer, Mangels, Butler &
Marmaro, 41 Cal. Rptr. 2d 329 (Cal. Ct. App. 2 Dist. 1995')(finding employees'
misrepresentations about their felony convictions related directly to their
wrongful termination claims; since they were not lawfully qualified for their
jobs, they cannot be heard to complain that they improperly lost them.).
B. Application to Certified Questions
Analysis of the cases cited above reveals a clear distinction between
those allowing after-acquired evidence on the issue of liability and those that
have not. The cases that have allowed use of after-acquired evidence to bar
recovery by the employee have involved causes of action, such as breaches of
contract, which implicate purely private concerns. See, e.g., Crawford
Rehabilitation Servs., Inc., 938 P.2d 540 (breach of implied contract and
promissory estoppel); Gassman, 933 P.2d 743 (breach of employment
contract). On the other hand, cases disallowing use of after-acquired evidence
on the issue of liability have implicated major public policy concerns, such as
prevention of discrimination or preservation of workers' compensation rights.
See, e.g., Trico Technologies Corp., 949 S.W.2d 308 (retaliatory discharge
under workers' compensation act); Walters, 537 N.W.2d 708 (retaliatory
discharge/discrimination actions); Horn, 548 N.W.2d 660 (sexual harassment,
constructive discharge, and retaliation); Thompson, 927 P.2d 781 (wrongful
termination for filing workers' compensation claim); Barlow, 479 S.E.2d 628
(employment discrimination).
The court in Crawford Rehabilitation Services observed that the
employee's breach of implied contract and promissory estoppel claims did not
implicate the McKennon-type public-policy interests of elimination of
discrimination in the work-place. See Crawford Rehabilitation Servs., 938
P.2d at 549. Similarly, the New Jersey Supreme Court has stated that "The
policy concerns that are at stake in applying the after-acquired evidence
defense to an unlawful discharge based on invidious discrimination differ
from those that are implicated in private-employment-contract actions ..."
Nicosia v. Wakefem Food Corp., 643 A.2d 554, 563 (N.J. 1994); see also
Schuessler v. Benchmark Marketing & Consulting, 500 N.W.2d 529, 541
(Neb. 1993)("Breach of a contract does not give rise to the same concerns or
demand the same protections as does an action based on discrimination.").
We find this distinction persuasive.
p. 60
LEWIS v. FISHER
McKennon disallowed the use of after-acquired evidence on the issue
of liability in order to serve the public policy reasons underlying ADEA and
Title VII, which include deterrence of discrimination, and compensation for
injuries caused by prohibited discrimination. We adopted the same approach
in Baber in an action involving the Whistleblower's Act. Baber, __ S.C.__,
488 S.E.2d 314. An action brought under the Whistleblower's Act is a suit
against a public employer by a public employee claiming to have been subject
to adverse personnel action in retaliation for having exposed governmental
wrongdoing. The Act is remedial and seeks to foster good government for the
benefit of the people of South Carolina by affording protection to
governmental employees, the most obvious and important sources of
information on the conduct of government. See Spencer v. Bamwell County
Hosp., 314 S.C. 405, 444 S.E.2d 538 (Ct. App. 1994). Clearly, a whistle-
blower's action implicates major public policy concerns. Such public policy
concerns, however, are not so prominently present in employee-employer
contract disputes, which simply involve the rights of private parties in
relation to one another. Accordingly, we conclude that the rationales
underlying McKennon and Baber are inapplicable in employment contract
cases. As such, there should not be an absolute bar to the use of after-
acquired evidence on the issue of liability in employee handbook breach of
contract actions.
Although we find that after-acquired evidence should be admissible on
the issue of liability, we recognize the potential dangers of allowing employers
unrestricted use of such evidence. If free reign were given, then in defending
breach of employment contract actions, less-than-principled employers (or
their attorneys) may be tempted to "rummage the file" in order to "discover"
any and all evidence that would permit them to escape liability. For
example, an employer that has been inclined to overlook his employees'
peccadillos (e.g. occasional tardiness), might suddenly claim, in response to
a breach of contract action, that the employee would have been fired had the
employer been aware of the tardiness. Thus, we conclude that although
after-acquired evidence should be allowed on the issue of liability, certain
limitations must be put into place so as to prevent abuse by employers. This
can be achieved by restricting use of after-acquired evidence in two ways.
First, the employer must prove that the wrongdoing was significant, that it
was of "such severity that the employee in fact would have been terminated
on those grounds alone if the employer had known of it at the time of the
discharge." See Baber, __S.C. at__, 488 S.E.2d at 320 (quoting
McKennon). Thus, evidence of employee wrongdoing that would not have
resulted in termination would not be admissible. Second, this proof must be
established, not by a preponderance of the evidence, but by clear and
p. 61
LEWIS v. FISHER
convincing evidence. We believe that these two limitations will serve to
exclude doubtful or insignificant evidence of employee wrongdoing, while
allowing evidence of very severe wrongdoing that should properly be
considered.
CONCLUSION
Therefore, in response to the certified questions, we reply that South
Carolina recognizes the after-acquired evidence doctrine as a defense to an
action brought by an employee terminated in violation of the progressive
discipline policy of an applicable employee handbook. Within this context,
the evidence may serve to allow the employer to avoid liability altogether, if
by clear and convincing evidence it is proven that the employee's wrongdoing
was of such severity that the employee in fact would have been terminated
on those grounds alone if the employer had known of it at the time of the
discharge.
CERTIFIED QUESTIONS ANSWERED.
FINNEY, C..J., MOORE, WALLER and BURNETT, JJ., concur.
p. 62