Since the U.S. Supreme Court adopted the after-acquired evidence rule in McKennon v. Nashville Banner Publishing Co., employers have relied on this doctrine to limit former employees’ remedies in wrongful termination cases.

Suppose an employer terminates an employee because he is 60 years old. That discharge would clearly violate the federal Age Discrimination in Employment Act and many state fair employment practices laws. However, suppose the employer discovers six months after the termination that the 60-year-old employee embezzled $100,000 from the company. Embezzlement would be a legitimate reason for an employer to terminate an employee. Three years after the discovery of the embezzlement, the employee’s age discrimination case goes to trial. The employee argues that he is entitled to a full recovery because, after all, he was terminated because of his age. The employer argues that the employee is entitled to nothing because he is a criminal who deserved to be fired, even though the employer didn’t realize it at the time.

The after-acquired evidence rule is intended to resolve problems like this. Under the rule, if an employer unlawfully discharges an employee but later discovers information that would have resulted in the employee’s discharge for legitimate reasons if the employer had known about it, then the employer can limit the employee’s recovery. The recovery would be limited to back pay calculated from the time of the wrongful discharge to the time that the employer discovered the information that would have resulted in the employee’s termination.

In its recent decision, Brown v. Fayetteville State University, the North Carolina Court of Appeals imported the after-acquired evidence doctrine into contested cases brought under the North Carolina Human Resources Act.

Brown v. Fayetteville State: The Administrative Hearing

Fayetteville State University accused one of its housekeepers of stealing from a library employee. The University dismissed the housekeeper after a six-day investigation. After appealing the dismissal through the school’s internal process, the housekeeper filed a contested case with the Office of Administrative Hearings, alleging termination without just cause under the state’s Human Resources Act.

During the administrative hearing, the housekeeper admitted to a litany of criminal convictions not previously disclosed on his initial employment application. Later, the housekeeper’s supervisor testified that he would not have hired the housekeeper if he had known about the convictions.

Although the Administrative Law Judge found that there was no credible evidence of the housekeeper’s theft, the after-acquired evidence of his prior criminal convictions would have resulted in his dismissal from the position anyway. Citing McKennon, the ALJ barred the housekeeper from reinstatement or front pay and awarded him only back pay. The housekeeper appealed.

The Appeal

A panel of the Court of Appeals approved the ALJ’s use of the McKennon rule in contested cases under the Human Resources Act.

The Court of Appeals noted that it had explicitly adopted the after-acquired evidence doctrine in Johnson v. Board of Trustees of Durham Tech. Community College. In that case, the Court compared the North Carolina Persons with Disabilities Protection Act with its federal counterpart, the Americans with Disabilities Act, and determined that the “purposes and contents” of the two statutes were consistent. Because the Supreme Court had applied the after-acquired evidence rule to claims under the ADA, the Johnson Court used the rule in a case brought under the North Carolina disabilities statute.

Applying that same reasoning to the Human Resources Act, the Brown Court found that the ADA, the North Carolina disabilities statute, and the Human Resources Act were “designed to guard against adverse employment action by employers . . . and contain[ed] similar remedial provisions.”

The Court adopted the ALJ’s reasoning, and held “that the McKennon rule should be implemented in contested cases brought under [the Human Resources Act].”

Contested Cases under the Human Resources Act after Brown

Under the Human Resources Act, discharged employees may bring a contested case to the OAH in only a handful of instances. See N.C. Gen. Stat. § 126-34.02(b). In cases of “just cause for dismissal, demotion, or suspension,” the burden of proof rests with the employer. N.C. Gen. Stat. § 126-34.02(d). In all other cases under the statute, the employee bears the burden. This means the McKennon rule should be distinguished from the legitimate non-discriminatory reason defense available in a contested case brought under the discrimination provision of the Human Resources Act.

Though not a liability escape hatch for terminating a state employee without just cause, the after-acquired evidence rule forecloses many of the statutory remedies available to discharged state employees. If an employer can show that it would have not have hired the employee, or would have terminated the employee had it known about the misconduct, then the after-acquired evidence shields the employer from having to reinstate the employee, pay back pay after the date of the discovery, or provide the employee with front pay. In a time of increased resume fraud, this can be helpful to defense counsel faced with an OAH contested case.

Though limiting plaintiffs’ remedies, the McKennon rule does not prevent the employee from recovering attorneys’ fees authorized by statute.

April 6, 2020/by Labor