In a decision this month, the South Carolina Supreme Court held that a third party’s intentional interference with an at-will employee can give rise to a cause of action by a former employee for tortious interference with contractual relations. While the ruling largely protected the employer, it may have the practical effect of putting employers in the middle of lawsuits between employees over alleged misconduct.
In Hall v. UBS Financial Services, Inc., the employer terminated the plaintiff following another employee’s report to UBS’ HR department that the plaintiff had made unwelcome sexual advances towards her. The plaintiff maintained that these allegations were false; however, UBS apparently determined otherwise and terminated his employment as a result. He then filed suit against UBS for breach of the implied covenant of good faith and fair dealing. He also filed suit against the third-party employee for tortious interference with contractual relations.
The case is pending in the U.S. District Court for the District of South Carolina, and that court asked the South Carolina Supreme Court to address three questions:
1. Are terminable at-will employment relationships contractual in nature as a matter of law?
2. Does the implied covenant of good faith and fair dealing arise in the context of terminable at-will employment relationships, and can an employer’s termination of the at-will relationship constitute a breach?
3. Can an employer’s termination of an at-will employee, which results from a third party’s report to the employer, constitute a breach of the relationship such that it may give rise to a claim against the third-party employee for tortious interference with a contractual relationship?
The South Carolina Supreme Court first determined that at-will employment relationships are contractual in nature whether they are memorialized in a written contract stipulating the at-will nature of the employment or orally formed simply out of circumstance. However, the court noted that its recognition of the contractual nature of at-will relationships did not alter the well-established rule in South Carolina that allows an employer to discharge an at-will employee for any reason without incurring liability. The court explained that under South Carolina law “the right to fire the employee at any time and for any reason is an integral term of the at-will contract.”
The court also determined that at-will employment relationships contain a covenant of good faith and fair dealing, reversing previous decisions stating otherwise. However, the court explained that the employer’s termination of the employee cannot form the basis of a claim breaching that covenant because the covenant does not infringe on the employer’s right to do what the contract allows it to do – terminate the employee for any reason. The court further explained that the employer may fire the employee “even for a bad reason” without incurring liability for breach of the implied covenant of good faith and fair dealing.
The court went on to decide that a third party’s intentional interference with a terminable at-will contract can give rise to a cause of action for tortious interference with contractual relations, even when the termination is not a breach of contract. The court added that potential liability extends to third parties who are not fellow employees of the terminated employee. This means that at-will employees who are terminated as the result of an intentionally false report made by another employee or non-employee can bring a cause of action for tortious interference against the individual making the false report.
This case opens the door for employees who are disciplined or terminated as the result of someone else’s allegations to bring a legal action against the individual or entity making the allegation. Although the Supreme Court made it clear that the at-will employment relationship allows employers to terminate for any reason, for no reason, or even a “bad reason,” this decision may have the practical effect of placing employers’ responses to misconduct allegations under stricter scrutiny. Employers should continue to thoroughly investigate such allegations and properly document any such investigation and the reasoning behind their conclusions.