July 1994

Workplace Labor Update - After-Acquired Evidence Bars Recovery for Discharge – July 1994

3 min

The United States Court of Appeals for the Eighth Circuit recently decided that evidence of employee misrepresentation on a job application, discovered by the employer after that employee's discharge, may bar a recovery for discriminatory discharge. Welch v. Liberty Machine Works, 23 F.3d 1403 (8th Cir. 1994).

Welch was discharged one week after informing Liberty that he had a medical condition requiring surgery. The surgery would have been covered under the employ-er's insurance plan, however, the company discharged Welch prior to the surgery, citing a work shortage as the reason. Welch filed a lawsuit claiming that he was discharged in violation of the Employee Retirement Income Security Act ("ERISA") and the Missouri Human Rights Act.

While deposing Welch, Liberty's attorney learned that Welch had falsified information on his job application, specifically failing to indicate that he had been fired from his previous job for poor work performance. Based on this knowledge, the attorney for the company filed a motion for summary judgment including as an exhibit the statement of the company's president that Welch would not have been hired by Liberty if he had disclosed the fact that he was fired by his prior employer. In addition, the company submitted a copy of its employment application bearing the statement, "any misstatement or omission of fact on this application shall be considered cause for dismissal."

The district court granted summary judgment for the employer and Welch appealed, contending that as long as an employee does not make misrepresentations with respect to his employment qualifications, after-acquired evidence should not serve as a bar to recovery in a discriminatory discharge case.

The Court of Appeals rejected Welch's argument and held that after-acquired evidence of an employee's misrepresentation does bar recovery for discriminatory discharge. The court based its holding on the rationale that employees should not be allowed to benefit from their misrepresentations once they are discovered. However, the court carefully limited its holding to the context of employment application fraud.

Presently, there is a split among various federal circuits as to the significance of after-acquired evidence. For example, the Sixth, Seventh and Tenth Circuits follow the rule adopted by the Welch court, i.e., that after-acquired evidence bars a recovery by the employee. On the other hand, the Eleventh Circuit has failed to adopt such a broad rule, and has instead stated that after-acquired evidence is merely "relevant" to the issue of relief. Further, the Eleventh Circuit has refused to adopt a rule creating an absolute bar to recovery in similar circumstances because it is feared that such a rule would create a "perverse incentive" for employers to violate state and federal anti-discrimination laws.

The Welch court, however, avoided the creation of such an incentive by requiring a heightened degree of proof on the part of the employer. The employer bears a substantial burden of showing that the company's policy on misrepresentation pre-dates the hiring and firing of the employee in question, and that the policy is more than boiler-plate language.

It should also be noted, that nothing in the Welch decision prohibits a finding of liability against the employer based on after-acquired evidence. The decision merely allows the employer to avoid the payment of damages in cases where an employer is able to carry its significant burden of proof.