Opinion ID: 1490250
Heading Depth: 1
Heading Rank: 6

Heading: Burden of Proof After-Acquired Evidence

Text: After RPS terminated Mr. Teter's employment, and while it was paying severance pay to him, RPS discovered that Mr. Teter had been viewing pornographic materials during working hours. RPS claims that had it known about the pornography, it would have immediately fired Mr. Teter for gross misconduct and would not have had to provide any severance pay. Under the 1997 contract, RPS is not required to provide severance pay if the employee is fired for gross misconduct. Thus, RPS seeks to use this after-acquired evidence to terminate any remaining obligations regarding severance pay that it would otherwise owe to Mr. Teter. Noting that the issue of after-acquired evidence was one of first-impression in Tennessee, the trial court adopted the reasoning in Lewis v. Fisher Service Co., 329 S.C. 78, 495 S.E.2d 440 (1998), and granted summary judgment for Mr. Teter. Lewis states, in pertinent part: 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. . . . 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. . . . Second, this proof must be established, not by a preponderance of the evidence, but by clear and 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. Lewis, 495 S.E.2d at 445 (citation omitted). Viewing the evidence in the light most favorable to the non-moving party, the trial court found that there was no clear and convincing evidence that RPS would have immediately terminated Mr. Teter had it discovered the pornography while Mr. Teter was still employed by the company. Therefore, the court concluded that Mr. Teter was entitled to judgment as a matter of law. The Court of Appeals affirmed the decision of the trial court, also adopting the aforementioned rule set forth in Lewis for the use of after-acquired evidence. We agree that an employer may use after-acquired evidence of employee misconduct in defense of a breach of contract case if the employer can demonstrate that it would have fired the employee had it known of the misconduct. However, rather than applying the clear and convincing standard to the evidence, we hold that the evidence need only be shown by a preponderance of the evidence. While this is not a breach of contract case in the same sense as the cases cited below dealing with the application of the after-acquired evidence doctrine, the same analysis applies. In the cases that follow, the controversy arose after the employee was terminated, and that employee brought a suit against the former employer claiming wrongful termination based either on breach of contract or on public policy grounds. By contrast, Mr. Teter's breach of contract claim does not relate to his termination, but rather to RPS's failure to continue his severance pay under the contract. Mr. Teter's right to severance pay is not dependent upon RPS's breach of the employment contract; rather, Mr. Teter is entitled to severance pay unless his discharge is based on gross misconduct or certain other types of conduct specified in the agreement. Thus in this case, in the absence of gross misconduct by Mr. Teter, RPS would be in breach of the employment agreement in failing to provide the severance pay required under that contract. The application of the after-acquired evidence doctrine as a bar to liability presents an issue of first impression in Tennessee. A majority of jurisdictions allow the use of after-acquired evidence either as a complete bar to an employee's recovery or to mitigate an employee's damages. [1] See generally, Stephen J. Humes, Annotation, After-Acquired Evidence of Employee's Misconduct as Barring or Limiting Recovery In Action For Wrongful Discharge, 34 A.L.R.5th 699 (1995); see also O'Day v. McDonnell Douglas Helicopter Co., 191 Ariz. 535, 959 P.2d 792, 795 (1998). Those jurisdictions that have concluded that a complete bar to recovery is appropriate, generally reason that under well-established principles of contract law, the prior misconduct of the employee excuses the employer's subsequent breach. See Crawford Rehab. Servs., Inc. v. Weissman, 938 P.2d 540, 547 (Colo.1997); Gassmann v. Evangelical Lutheran Good Samaritan Society, Inc., 261 Kan. 725, 933 P.2d 743, 745 (1997); McDill v. Environamics Corp., 144 N.H. 635, 757 A.2d 162, 166 (2000); see also Restatement (Second) of Contracts, § 237 (1981). Comment c, illustration 8 to section 237 of the Restatement is directly on point: A and B make an employment contract. After the service has begun, A, the employee, commits a material breach of his duty to give efficient service that would justify B in discharging him. B is not aware of this but discharges A for an inadequate reason. A has no claim against B for discharging him. Courts allowing the use of after-acquired evidence have required the employer to show that (1) the employee was guilty of some misconduct of which the employer was unaware; (2) the misconduct would have justified discharge of the employee; and (3) had the employer known of the misconduct, the employer would have discharged the employee. See Gassmann, 933 P.2d at 745; McDill, 757 A.2d at 166. We agree that in a breach of contract case, after-acquired evidence of employee misconduct is a defense to a breach of contract action for wages and benefits lost as a result of the discharge if the employer can demonstrate that it would have fired the employee had it known of the misconduct. O'Day, 959 P.2d at 799. [2] This corresponds with the first prong of the test set forth in Lewis , which requires evidence of employee wrongdoing 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. 495 S.E.2d at 445 (citations omitted). It is on the issue of burden of proof that we disagree with Lewis and therefore the lower courts in this case. Lewis requires that the evidence of the employee misconduct and the employer's intent to fire the employee had it known of the misconduct to be clear and convincing. 495 S.E.2d at 445. However, no other jurisdiction that has addressed the issue of after-acquired evidence and accepted its use either as a complete bar or as a limit to liability, requires that the evidence be clear and convincing. See, e.g., Brooks v. Lexington-Fayette Urban County Housing Auth., 132 S.W.3d 790 (Ky.2004) (specifically stating that the evidence is to be shown by a preponderance); see also McKennon v. Nashville Banner Publ'g Co., 513 U.S. 352, 115 S.Ct. 879, 130 L.Ed.2d 852 (1995); McCaskill v. ConAgra Foods, Inc., 296 F.Supp.2d 1311 (M.D.Ala. 2003); Carroll v. Bayerische Landesbank, 150 F.Supp.2d 531 (S.D.N.Y.2001); Schiavello v. Delmarva Sys. Corp., 61 F.Supp.2d 110 (D.Del.1999); Camp v. Jeffer, Mangels, Butler & Marmaro, 35 Cal.App.4th 620, 41 Cal.Rptr.2d 329 (1995); Crawford, 938 P.2d at 547; Brown Distrib. Co. of West Palm Beach v. Marcell, 890 So.2d 1227 (Fla.Dist.Ct.App.2005); Walters v. United States Gypsum Co., 537 N.W.2d 708 (Iowa 1995); Gassmann, 933 P.2d at 745; Taylor v. Int'l Maytex Tank Terminal Corp., 355 N.J.Super. 482, 810 A.2d 1109 (2002); McDill, 757 A.2d at 166; Johnson v. Bd. of Trs. of Durham Technical Cmty. Coll., 157 N.C.App. 38, 577 S.E.2d 670 (2003); Barlow v. Hester Indus., Inc., 198 W.Va. 118, 479 S.E.2d 628 (1996). For the reasons which follow, we agree with the majority that the preponderance standard is the correct standard to use in this case. The standard of proof required in a case serves to allocate the risk of error and to instruct the factfinder as to the degree of confidence society expects for a particular decision. Estate of Acuff v. O'Linger, 56 S.W.3d 527, 536 (Tenn.Ct. App.2001). Generally, in civil cases, facts are proved by a mere preponderance of the evidence. Endowment Rank of Order of K.P. v. Steele, 107 Tenn. 1, 63 S.W. 1126, 1128 (1901); Burchett v. Stephens, 794 S.W.2d 745, 748 (Tenn.Ct.App.1990). The preponderance of the evidence standard requires that the truth of the facts asserted be more probable than not, whereas the clear and convincing evidence standard requires that the truth be highly probable. Clear and convincing evidence means evidence in which there is no serious or substantial doubt about the correctness of the conclusions drawn from the evidence. Hodges v. S.C. Toof & Co., 833 S.W.2d 896, 901 n. 3 (Tenn.1992). The higher standard of clear and convincing evidence is used to promote important public policy and preserve prior judicial orders. Estate of Acuff, 56 S.W.3d at 536. For example, the Tennessee legislature has imposed a clear and convincing evidence standard in certain instances where it has found a compelling public policy. See Tenn.Code Ann. § 31-2-105 (2004 Supp.) (establishment of parental relationship for purposes of intestate succession); Tenn.Code Ann. § 36-1-113 (2004 Supp.) (termination of parental rights); Tenn.Code Ann. § 56-7-1201(e) (2004 Supp.) (existence of unknown motorist under uninsured motorist statute). The courts have also imposed a clear and convincing standard in circumstances involving extraordinary remedies. See Estate of Acuff, 56 S.W.3d at 536 (setting aside deed on grounds of fraud); Hodges, 833 S.W.2d at 901 (award of punitive damages); Pierce v. Flynn, 656 S.W.2d 42, 46 (Tenn.Ct.App. 1983) (reformation of a contract). We find no compelling public policy reason for requiring the imposition of a clear and convincing standard for after-acquired evidence in a breach of contract case. [3] There is nothing inherently suspect about after-acquired evidence in an employment contract dispute. If such evidence is credible, there is no rationale for treating it differently from other evidence in a contract dispute. Juries have always been considered capable of comprehending such evidence, weighing it, and determining its probative value in the ultimate resolution of the case. It is for a jury to decide if an employee's misconduct is of such severity that he or she would have been fired immediately had the employer known of it. A jury could just as easily determine that the misconduct did not rise to that level of severity, and the employer was simply fishing for any misconduct in the employee's past in order to justify the firing. There need not be a heightened standard of evidence in order for a jury to properly make these determinations. Thus in order to defend the breach of contract claim brought by Mr. Teter, we hold that RPS needs to show, by a preponderance of the evidence, that Mr. Teter was guilty of gross misconduct and that had RPS known of this misconduct, it would have fired Mr. Teter immediately. Applying the preponderance of the evidence standard, we conclude that there is an issue of material fact as to whether RPS would have fired Mr. Teter had it discovered that Mr. Teter was viewing pornography during working hours. Mr. Berry sent Mr. Teter a letter on October 24, 2001, stating: If I had known this [pornographic] material existed before or during the time of our employment contract discussions, I would have terminated you immediately. However, there was also evidence that suggested that Mr. Teter would not have been fired immediately upon discovery. For example, Mr. Berry stated in his deposition that he would still like to have Mr. Teter working for the company. Additionally, no one ever told the employees of RPS that they were not to use the internet for personal use during working hours. The Court of Appeals found that in light of the evidence suggesting that Mr. Berry would not have fired Mr. Teter, the October 2001 letter did not amount to clear and convincing evidence that RPS would have in fact fired Mr. Teter. However, under a preponderance standard, there is a material issue of fact that cannot be resolved on motion for summary judgment. Therefore, we remand this case for trial.