Managers called him a ‘thief’ to clients. Court says qualified privilege doesn't apply here
An Ohio court ruled that badmouthing a former employee to clients can breach nondisparagement agreements, even when companies claim they were just protecting business interests.
The February 11 decision from Ohio's First Appellate District should serve as a wake-up call for HR leaders navigating what managers can say about former employees who join competitors.
Grant Hilty thought his dispute with his former employer was settled. After being fired from Donnellon McCarthy Enterprises, a copier services and office equipment company, he and DME signed a settlement agreement that included a mutual promise: neither side would disparage the other.
Then Hilty joined Modern Office Methods, a DME competitor. That's when things allegedly got messy.
According to testimony at trial, DME managers made damaging statements about Hilty to prospective clients he was trying to win over. The twist? These prospective clients were also current DME customers. DME's Cincinnati sales manager Steve Sexton told Angela Conners at Maintenance Methods that Hilty was a thief who stole from DME, had to be monitored, and wrote incorrect contracts. Conners testified she sent Sexton and his manager an email detailing that Sexton called Hilty a thief who wrote incorrect contracts, and that she did not pursue a contract with Modern Office Methods as a result.
Similar conversations allegedly happened with other potential clients. Quigley at ClaimLinx recalled conversations with a DME representative who described Hilty as a liar. He also described a conversation with DME President Jim George, who called Hilty a lying piece of shit. Dr. Moran at New Hope Community Services testified that Sexton told her that Hilty falsified documents, misrepresented facts, and engaged in unethical behavior.
At trial, a Hamilton County jury found that the Conners statements occurred, were untrue, and proximately caused injury to Hilty. But here's where it gets complicated. The trial court required Hilty to prove that DME acted with actual malice, meaning the company knew the statements were false or recklessly disregarded the truth. This higher standard came from something called qualified privilege, a legal shield that sometimes protects business communications. Because Hilty couldn't meet that tougher test, the jury determined he had not established defamation.
The appeals court disagreed with applying that protection. The judges found that qualified privilege covers communications that further a shared business interest between the speaker and listener. DME argued its relationship with clients justified the statements. But the court wasn't buying it.
The court pointed out that DME was hired to provide copy and office services, not investigate outside vendors or competitors. The statements weren't about DME's services. They were about potential contracts between the clients and a different company entirely.
The court drew a clear line. Disparaging a business competitor does not directly further or concern a mutual interest in effective office services with clients, the judges wrote. The decision emphasized that DME's statements went beyond informing clients about their own services and instead attacked Hilty's ability to perform at his new employer.
The court also tackled the breach of contract claim. The trial court had dismissed it as wholly derivative of the defamation claim. The appeals court reversed that too, noting that the nondisparagement agreement covered more ground than defamation law. While defamation requires proving a statement is false, the agreement barred any statement that disparages or impugns someone's reputation, even if it's an opinion.
The court offered this pointed observation: if DME felt morally obligated to warn clients about Hilty, it should not have contracted away its right to do so through the nondisparagement agreement.
The case now goes back to the trial court with instructions to enter judgment for Hilty on his defamation claim and hold a trial to determine damages. His breach of contract claim will also get a new trial.
For HR professionals, the message is clear. Nondisparagement agreements mean what they say, and managers need training on what they can and cannot say about former employees, even when clients ask questions.
