The law regards a corporation as an entity with its own legal rights and responsibilities, separate from those of its shareholders, officers or directors. Yet, a corporation can act only through the conduct of its officers, directors and employees. Consequently, an issue often arises as to whether a corporate officer can be held individually liable for damages when he or she causes the corporation to fire an employee. As is often the case in the law, it depends. Generally, the answer to this question is “no,” although a corporate officer may be liable for egregious behavior.
The fired employee would most likely sue the corporate officer for intentionally interfering with the employee’s contract or advantageous business relationship with the corporation. This article focuses on a corporate officer’s personal tort liability for interference with an employee’s employment and does not concern the personal liability of officers under state or federal anti-discrimination statutes.
An employee of a corporation cannot bring a claim against the corporation itself for interference with contract. This is because the corporation was a party to the agreement and cannot be guilty of interference with its own contract. The question is whether the terminated employee can sue officers of the corporation individually where a suit against the corporate entity would be barred. There are a number of obstacles to such a claim.
The actual malice standard.
First, an employee suing a corporate officer must satisfy a more demanding test than is applied to claims for tortuous interference arising outside the employment context. To state a claim for the tort of intentional interference with contractual or advantageous business relations, a plaintiff usually must allege: (1) that he or she had a contract or an advantageous business relationship with a third party; (2) the defendant knowingly induced a breaking of the contract or relationship; (3) the defendant’s interference with the contract or business relationship, in addition to being intentional, was improper in motive or means; and (4) the plaintiff was harmed by the defendant’s actions. Such a claim is usually made by one party to a contract against a third party who induced the other contracting party to breach the contract or terminate the business relationship.
Where an employee is suing a corporate official acting within the scope of his corporate responsibilities, however, the employee has a heightened burden of showing that the improper motive or means constituted “actual malice,” that is, a spiteful, malignant purpose, unrelated to the legitimate corporate interest. The fact that the defendant officer acts for personal gain, or dislike of the plaintiff is not sufficient. Proof of actual malice is part of the plaintiff employee’s case, not a defense as to which the defendant officer has the burden of proof.
The actual malice standard reflects the privileged nature of a corporate officer’s conduct within the scope of his or her duties. A corporate officer is generally privileged to interfere with contracts between the corporation and a third party because a corporate officer’s freedom of action, directed toward legitimate corporate purposes, should not be curtailed by fear of personal liability.
Corporate alter ego.
Second, even if the actual malice standard were satisfied, an individual corporate officer may be so closely associated with the corporation that the corporation’s contract is properly regarded as the officer’s own contract. In such a case, the plaintiff’s claim will fail because the officer cannot be guilty of interference with his or her own contract. There is, however, no per se rule that a corporate officer or employee can never be a third party vis-à-vis a contract between his employer and another employee. Whether the officer is too closely associated with the corporation will be decided on the facts of each case.
Ultimately, a corporate officer’s tort liability for causing the corporation to terminate an employee is a matter of common sense. So long as the officer is acting in good faith, for the good of the corporation, there is no liability. Where, however, the officer acts with an improper ulterior motive to harm the employee, the employee may have a claim.