Company May Characterize Employee as a Compliance Risk
In certain circumstances, a company’s statement that one of its employees poses a significant and unacceptable compliance risk is not defamatory. According to a recent federal appellate decision, such a statement (made by a company while complying with a deferred prosecution agreement relating to Foreign Corrupt Practices Act (FCPA) violations) had no “provably false factual connotation,” and was a statement of opinion beyond the reach of defamation law.
This matter arose from a lawsuit by an employee against his company seeking damages for defamation. The company sold medical devices in Brazil pursuant to a distribution agreement with a third-party distributor. The company had entered into two deferred prosecution agreements with the Department of Justice (DOJ) relating to FCPA violations. The first deferred prosecution agreement required the company to hire an independent corporate compliance monitor, who had the authority to investigate the company’s compliance program and issue a report and recommendations; the agreement required that the company adopt all the recommendations.
The company, following its monitor’s recommendation, had distributed a “Restricted Parties List” of individuals and entities who “posed a risk” to the company’s compliance with anti-corruption and anti-bribery laws. The list prohibited the company and its affiliates from engaging in business with listed parties. This list included the employee, who had responsibility for implementing the company’s compliance policies. The employee had been informed, after the fact, that a distributor had paid bribes to healthcare providers in violation of the FCPA. He then continued to work with an individual from that distributor to sell and market products even though the company had banned the individual from such activity. After the company terminated the employee, he sued the company for defamation.
A recent decision by the United States Court of Appeals for the Seventh Circuit emphasized that the company’s monitor would not have approved the Restricted Parties List without including the employee’s name. It also noted that the second deferred prosecution agreement referred to the employee’s conduct. In that agreement, the company stated that it had continued to do business with the problematic third-party distributor because certain executives, including the employee, had ignored a company-wide requirement to cease all business with that distributor.
The opinion described the Restrict Parties List as “best practice.” Additionally, “for a company twice investigated by the DOJ for FCPA violations, it is reasonable to take a hypersensitive view of potential compliance risks.” It rejected the employee’s argument about an alleged lack of evidence that he engaged in criminal conduct. The court concluded that “[e]ven if there were zero evidence he engaged in criminal conduct, that would not prove false” the company’s concern that he posed a compliance risk.
Because the statement was an opinion, the Seventh Circuit did not address the company’s other arguments that the Restricted Parties List was protected by the qualified privilege of common interest since it was (1) published in good faith based upon a legal, moral, or social duty to persons having a corresponding interest or duty, and (2) made at the behest of law enforcement to avoid corruption-related behavior. Notably, though, the district court had agreed with both points – such reasoning could provide additional solace to companies evaluating defamation liability when drafting a Restricted Parties List or similar material.
The processes the company had in place when developing the Restricted Parties List may also be useful to companies in similar situations. For example, the company:
– created a committee to oversee determinations as to who could be included on the list,
– actively involved the monitor in evaluating and approving what parties to include, and
– used a written set of decision parameters to guide its determinations.
The company also limited distribution of the list to only the relevant business partners of the company in the Latin American region.