Can an Employee’s Severance Pay Be Cut Off Based on After-Acquired Information?

Unfortunately, the Massachusetts appellate courts have not directly decided the issue whether an employer can re-characterize an employee’s termination from “without cause” to “for cause” based on information learned after an employee’s termination. While the Massachusetts courts have had the opportunity to consider the issue, they have neither adopted nor rejected the doctrine.

Most recently, the Supreme Judicial Court was again asked to address the doctrine, but did not do so.

After a vice president of a company, EventMonitor, Inc., was terminated “without cause” based on his proposed restructuring plan that the president believed would undermine the future of the company, the company conducted a forensic examination of the vice president’s laptop computer. It was discovered that he had copied – to a backup and storage service he personally purchased – certain proprietary information of the company. The employee’s employment agreement required him to return all such information upon termination.

EventMonitor deemed the vice president/employee’s actions to be defalcation of company assets, which was one of the only reasons the employee could be terminated “for cause,” in which case the employer would not be required to pay the contractual severance pay.

About five weeks after the employee’s departure, EventMonitor retroactively re-characterized the employee’s termination as being “for cause.”

The lower court, as affirmed on appeal, held that the employee did not engage in defalcation and the mere failure to return copies of EventMonitor’s proprietary information, although a breach of the employment contract, was not “knowing disclosure” or “knowing use” of the proprietary information, and EventMonitor was not entitled to stop the severance payments.

While the courts of the Commonwealth have not adopted or rejected the “after-acquired evidence doctrine,” it will be interesting to see how they decide the issue when the right facts are presented where the employer discovers after termination that the employee did in fact commit a material breach of the employment contract, which if initially known, would have precluded the employee from the right to collect severance.