May 9, 2007

Massachusetts High Court Rules Corporate Official Not Liable for Wrongful Interference with Employment Absent Proof of Malice

The Massachusetts Supreme Judicial Court recently considered, in Blackstone v. Cashman, the standard that applies to corporate officials in determining if they are individually liable for wrongful interference with an employment relationship between the corporation and an employee. The court held that a corporate official cannot be held liable on such a claim unless his actions are malicious. This decision is an important clarification of the law, and emphasizes that corporate officials have wide latitude to conduct internal company business without facing personal liability.

Blackstone v. Cashman

Thomas Blackstone was the chief financial officer of J.M. Cashman, Inc. (the Company). James M. Cashman was a director of the Company. The Company was being liquidated and, as part of the wind-up, Cashman was supposed to receive a $20,000 check on the first of each month. When he did not receive his monthly check, he called David Ferrari, the Company’s chief executive officer, and insisted that Ferrari take care of this problem. Cashman then made several threats against Blackstone to Ferrari. Specifically, Cashman told Ferrari that he would “go down and shoot” Blackstone and that he would “bash [Blackstone’s] over the head with a baseball bat” if he did not get his check. When Ferrari asked Cashman if he was serious, he said “yes.”

After Blackstone learned of Cashman’s comments, he refused to return to the office and worked from home for the remainder of his employment contract. He then brought a lawsuit against Cashman for interfering with his employment relationship with the Company.

In evaluating Blackstone’s claim, the court initially noted the following elements necessary to establish a successful claim for intentional interference with advantageous relations. A plaintiff must prove that: (i) he had an advantageous relationship with a third party (for example, an employment relationship), (ii) the defendant knowingly induced a breaking of the relationship, (iii) the defendant’s interference with the relationship was improper in motive or means, and (iv) the plaintiff was harmed by the defendant’s actions.

The court then considered how a plaintiff employee must prove the element of “improper motive or means” when the defendant is a corporate official. In a 1982 case, Gram v. Liberty Mutual Insurance Co., the court had held that corporate officials acting within the scope of their employment responsibilities are privileged to act unless they do so out of malevolence, that is, with “actual” malice, and that implied malice is not sufficient to satisfy the element of acting with improper motive or means. In cases since Gram, however, the court appeared to reject the actual malice standard, and suggested that proof of any wrongful motive or means would suffice. The Blackstone court sought to clarify whether the actual malice standard applies when determining whether a corporate official wrongfully interfered with an employment relationship.

In evaluating what it means for interference to be “improper in motive or means” the court affirmed its holding in Gram and held that, because Cashman was a corporate official of the Company, Blackstone must prove that he acted with “actual malice.” The court explained that this heightened “actual malice” standard is necessary to protect the freedom of corporate officers in matters related to the internal affairs of a corporation. This actual malice standard replaces the disjunctive analysis of “improper in motive or means” with a single question, whether the controlling factor in the alleged interference was actual malice toward the plaintiff.

Who Is a Corporate Official?

Blackstone claimed that Cashman was not a corporate official entitled to the protection of the heightened “actual malice” standard because he was not involved in the day-to-day operation of the Company. The court held that Cashman was a “corporate official” because he was one of the two directors of the Company and it did not matter that he was not involved in its day-to-day activities. The court clarified that the term “corporate official” should be viewed expansively to include not only executives, officers and directors, but also managers and line supervisors. A dissenting justice noted that although the term “corporate” official is used, this term is not limited to officials of entities that have the corporate form; rather it can include officials of any entity, however organized.

Application of Actual Malice Standard

What, precisely, does it mean for a corporate official to act with “actual malice?” Actual malice is “a spiteful, malignant purpose, unrelated to [a] legitimate corporate interest.” In evaluating whether a jury could reasonably find that Cashman’s behavior reached the level of actual malice, the court explained that the jury might find that Cashman’s demand to receive his check and the threats he made were separate, divisible parts, with the threats evidencing actual malice. On the other hand, the jury might find that the threats were integral to Cashman’s business-related objective (to receive timely payment pursuant to the wind-up agreement) and complaint (concerning Blackstone’s bias against him in carrying out corporate responsibilities). Only the first case would warrant a finding of actual malice. The court noted that actions motivated by personal financial gain usually are not considered malicious, nor would a showing of personal dislike automatically establish malice. Likewise, anger and ill-advised outbursts are not necessarily sufficient to warrant an inference of malice. The corporate official must have been acting with a spiteful, malignant state of mind to be found liable.

In Gram, a case with more typical facts, the court rejected the plaintiff’s intentional interference claim. Gram involved an employee of an insurance company who was fired after he sent out notes to prospective clients that his superiors claimed were unauthorized mailings under the company’s policies. The court explained that the inference that Gram’s superiors did not like him was not sufficient to warrant an inference that his superiors acted with ill will in obtaining his discharge. In fact, Gram was unable to point to a single, direct manifestation of ill will toward him by his superiors.

Conversley, in O’Brien v. New England Telephone & Telegraph Company, the court held the plaintiff, Mary O’Brien, presented sufficient facts to the jury to prevail on a wrongful interference claim. O’Brien successfully refused her supervisor’s efforts to have her transferred to another department. After that, her supervisor became very hostile towards her, calling her, for example, “stupid,” “nitwit,” “loony tunes,” as well as, a “whore,” “prostitute” and “slut.” Her supervisor also denied her work opportunities. Ultimately, O’Brien’s employment was terminated for misconduct. The court held that the jury was warranted in concluding that O’Brien’s supervisor exceeded his rightful role, and that his action concerning her employment termination was prompted by his personal resentment of her successful challenges to his decisions and her refusal to transfer out of his department. The court explained that screaming at an employee repeatedly to humiliate her in front of other employees, calling her names and denying her work to do when work is available could be found to be malicious and outside the bounds of the employer’s legitimate business interests.

Potential Application of Blackstone Case in Defending Claims of Discrimination Brought Against Individual Managers, Supervisors and Other Corporate Officials

The Blackstone court’s emphasis on the need to protect the freedom of action of corporate officials in matters within the sphere of a company’s legitimate interests could be extended beyond wrongful interference claims. While federal anti-discrimination laws typically do not countenance discrimination claims against individual managers and supervisors, such claims are possible under Massachusetts law. It is a common tactic for an employment discrimination plaintiff to sue not only her employer, but also her manager or supervisor and others involved in the alleged discriminatory action. Paradigms established by the courts for proving discrimination do not require direct proof of discriminatory intent. Rather, unlawful discrimination can be inferred – for example, if a minority worker is replaced by someone not in his protected class, and the employer’s reasons for doing so are found to be pretextual. But should such an inference be sufficient for a discrimination claim against an individual defendant?  Wouldn’t fear of liability on such a theory have a chilling effect on a supervisor in his dealings with protected class employees (e.g. minority, female, over 40, handicapped, gay or lesbian)? 

For example, an employee brings a claim against his employer for race discrimination and he also names his supervisor in the lawsuit. He claims that his supervisor “aided and abetted” his employer’s discrimination by recommending his termination. He asserts that his supervisor was racially biased, and unfairly applied rules to him more strictly than to his co-workers because of his race and this inequitable application of workplace rules led to his termination from employment. In evaluating such a claim, application of the Blackstone principle of protecting the freedom of action of corporate officials would suggest that the employee ought to be required to present direct evidence of the supervisor’s discriminatory bias in order to prevail on his discrimination claim against the supervisor.

We emphasize that we are not aware of any Massachusetts court decision applying Blackstone in the discrimination context. However, we believe that the case establishes good policy that should be extended to protect corporate officials from discrimination claims absent clear proof of discriminatory bias.