Phelan v. The May Department Stores Co. (Massachusetts Supreme Judicial Court)

This case raises the issue of whether an employer should be held liable for defamation by conduct in its investigation of an employee’s involvement in suspected accounting irregularities where the employee proffered no testimony from any of the witnesses to the alleged conduct that they understood it to be defamatory. Phelan, an accountant, was assistant director of accounts payable for May Department Store, d/b/a Filene’s. His superiors suspected him of playing a significant role in certain accounting irregularities. Filene’s investigated the suspected financial wrongdoing with the help of two auditors. Beginning on July 9, 1998, numerous employees were summoned to an executive’s office for questioning in the matter. On the morning of July 10, 1998, following his initial questioning, Phelan was directed to another executive’s office and was instructed to wait there while Filene’s interviewed one of Phelan’s subordinates. Shortly thereafter, the executive who initially questioned Phelan returned to the office with a Filene’s security officer. The executive instructed the security officer, “Don’t let him use the phone or leave.” The security guard remained with Phelan at Filene’s for the next six to seven hours and accompanied him throughout the day. Other employees were present when the guard escorted Phelan to various offices and rooms. Although the guard did not wear a badge, he wore dark trousers, black shoes, a shirt, blazer and tie, all supplied by Filene’s and similar to the clothes worn by its security guards. At the end of the day, Phelan was escorted from the building and his employment was subsequently terminated. Phelan sued in the Massachusetts Superior Court for false imprisonment and defamation by conduct. The jury found for Phelan on both counts and awarded damages of $1,500 for false imprisonment and $75,000 for defamation. Filene’s moved for judgment notwithstanding the verdict on the defamation count, which motion was allowed. The trial court reasoned that Phelan had failed to overcome Filene’s conditional privilege to publish defamatory matter reasonably related to protecting its legitimate business interests. The court also expressed doubts whether Phelan had proffered sufficient evidence of publication. Phelan appealed the trial court’s ruling and the Appeals Court, 60 Mass. App. Ct. 843 (2004), reinstated the jury’s verdict on the defamation count finding Filene’s conduct “interpreted in the light most favorable to the plaintiff, is communicative of criminal wrongdoing and amounts to a statement for purposes of Phelan’s defamation claim,” and also holding that the testimony of witnesses as to What they saw and what they thought the allegedly defamatory conduct or gesture meant. . . is not mandated” under Massachusetts law. Filene’s filed a petition for further appellate review with the Supreme Judicial Court, which was allowed. On August 25, 2004, NELF filed with the SJC an amicus brief jointly with Associated Industries of Massachusetts that addressed whether an employer should be held liable for defamation of conduct in its investigation of an employee’s involvement in suspected financial misconduct. The amicus brief made two arguments. First, it argued that where the claim is defamation by conduct, rather than by words, a plaintiff should be required to proffer witness testimony interpreting the conduct as defamatory. Because conduct alleged to be defamatory is inherently fraught with ambiguities, more should be required when such a claim is brought than might suffice where a defamation claim is based on spoken or written words. Second, the amici pointed out that the Appeals Court’s holding in this case, if upheld by the Supreme Judicial Court, would unduly interfere with the efforts of employers to investigate and prevent financial or criminal wrongdoing, workplace violence and theft. The amici pointed out that there are a number of matters of suspected wrongdoing—including employee theft, workplace violence, and sexual harassment—that legitimately require the use of security personnel and often necessarily result in an employee's being escorted off of the business’s premises. The Appeals Court’s decision would make all such actions open to a potential defamation by conduct claim. In short, the amici argue, important questions of public interest warrant an affirmance of the Superior Court’s judgment notwithstanding the verdict on the defamation by conduct claim. The SJC argument in this case took place on October 6, 2004.