Defamation in Business Law What Is Defamation  Term Paper

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Defamation in Business Law

What is Defamation?

Defamation is when a person's reputation or character is damaged (or injured) due to the false statements or actions of others. A defamatory statement can affect both a person as well as a corporation. This is a black spot on a person's good name. It tarnishes the reputation of a person and can leave it in tatters. It is more like an improper attack against a person's right to his/her good name and reputation Defamation is a false attack on your good name.

The only question which remains is will the statement will lower the person or corporation's standing in the eyes of the world? Will it cause other people to avoid dealing with the plaintiff in a personal or business setting? However not every defamatory statement is taken to be a valid defamatory claim by a court of law. Not all defamatory statements are false. There might be true statements which are defamatory in nature and have the possibility to lower the standing of the party on whom they were made. A defamatory claim can be made if the statements are false and defamatory. This is when they are ripe for defamation liability.

Defamation in Business Law

Defamation can be bad in business terms. We can take the example of an employee being fired from his/her job for no reason. If the former employer or any of his/her representatives defames him/her, then the former employee is able to sue for being attacked for his/her reputation or character. However he/she is not able to sue for wrongful termination based on his/her contract. Legal experts state that a defamatory remark on character and reputation can cause a person to loose his job. They feel that it is in violation of public policy as it is a wrongful termination. This means that the employee's job was terminated because of the defamatory statement.


We can take a valid example here. We can take the case of an employee who has quit or been fired from his job. The employee is seeking a new position with another employer. The prospective employer has to consult the former employer for background information regarding the candidate. This is important for them as they need to make a decision whether they should hire him/her. The former employer could be an employee in the supervisory level. The former employer chooses to make a negative statement about the former employee and his work performance. This is when the employee does not get the job with the prospective employer. The former employee believes that he/she did not get the job as his/her former employer made false statements against him/her. The lawsuit is targeted against the corporation as well as the employer.

This has been a common scenario since the past few years. Thousands of former employees have filed lawsuits against their former employers. According to Lewis, Ottley and Mersol, Employment-related claims have been estimated to account for roughly one-third of all defamation cases pending at any given time.

We can take a look at an example of a false statement lawsuit filed by an employee against his former employers. An insurance broker Clifford Zalay filed a lawsuit against his former employer, the John Hancock Mutual Life Insurance Company. The lawsuit was filed because John Hancock made a number of false statements against Zalay by accusing him of being involved in shading dealings. They also made statements that they had reprimanded him for giving improper advice to a policy holder. However the jury did not find any evidence of shading dealings. There was also no evidence to prove that Zaladay had given any improper advice. Therefore the jury awarded Clifford Zalay $26 million dollars in damages.

There was also a lawsuit in Texas Frank B. Hall & Co. v. Buck (1984). This was a case which resulted in the plaintiff being awarded $2 million. The plaintiff claimed in this case that his former employer had character assassinated him. He claimed that they had falsely characterized him as an untrustworthy person who did not finish his goals and freeloaded on the company's expense account.

There is also an example of a case which involved the employer being involved in a defamation lawsuit despite not making any defamatory statements to its former employees prospective employers. This was case in Minnesota, Lewis v. Equitable Life Assurance Society (1986). The four plaintiffs were awarded $225,000 a piece. They had filed a lawsuit based on the claim that their former employer had labeled them "grossly insubordinate." The jury reached a decision in favor of the plaintiffs. The court ruled that that the employer had no adequate basis for so labeling the plaintiffs.

Legally Equitable did not break any rules as it did not share that knowledge with any of prospective employer of the prospective employer. It was found out that the plaintiffs had shared that information with their prospective employers. They had done so after being asked why their employment with equitable had been terminated. The defamation lawsuit was filed after they were rejected. Equitable argued that it was not responsible as the plaintiffs had shared the statement themselves. However the Minnesota Supreme Court rejected their argument as they felt that the plaintiffs were required to disclose Equitable's statement of character to their prospective employer to let them know why their previous employment had been terminated. They also felt that Equitable should have foreseen these events as they knew for a fact that the plaintiffs would have to make an involuntary disclosure to its prospective employers.

There have also been examples of defamation where letters to the editor have sprung up lawsuits. These letters were targeted against certain people or businesses. The authors of the letter were sued for their views. In some cases the newspapers are also made party to the suit as they are responsible for publishing the statements. Therefore they need to make sure that they have protection against such claims. Businesses have to be really careful before they breach any laws. They have to make sure that their personnel department should not allow any defamatory statements to be made against former employees. Legal experts feel that a business should be careful when making statements concerning a former employee. Any harsh or adverse statement can have a bad impact on a former employee's livelihood. They should have proper policies and procedures to reduce such claims.


There was a time when defamation claims in favor of human plaintiffs were recognized at first. Now its corporations are permissible plaintiffs in defamation cases. It is well-known that corporations have to protect their business reputation. They can't afford to risk their reputation for false statements. It is important for them to clear their name. Their reputation revolves around competence, solvency and integrity.

We have an example of a lawsuit where GTE had sued the Home Shopping Network for Defamation. They were awarded $100 million by a Florida Jury last year. GTE's case was based on competency. This case was filed because of false statements by the Home Shopping Network. These false statements showed GTE in a bad light and questioned its competence. The HSN had claimed in public statements that it had suffered millions of dollars in losses because of GTE. They claimed that had GTE had provided it with faulty telephone equipment and services. They also sued GTE because of the alleged failure of GTE to provide them with standard equipment. GTE was quick to file a countersuit for defamation as it felt that the HSN's public statements about their telephone equipment lead to a lot of falsehood and damaged their reputation.

There is another example of defamatory falsehood. This case was the Brown & Williamson Tobacco Corp v. Jacobson (1987). This lawsuit was filed on the claims…

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