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Staffing agency, hospital, and CFO entitled to defense in defamation claim


HR managers and other company leaders responsible for third-party communications about employment matters should be careful not to engage in communications (written or oral) that could be considered slanderous or defamatory. Even routine business information can sometimes trigger that kind of litigation, as the following case shows.


King's Daughters Medical Center contracted with Staff Care Inc., a staffing agency, to provide physicians for general anesthesia. In October 2001, the agency placed Dr. Mary Beth Calor at the hospital for anesthesia services.

Staff Care began to investigate the hours that Calor was reporting. It contacted her business manager (her husband) to inquire about the reported 56 24-hour shifts. He informed the agency that her hours were accurate.

Staff Care contacted the hospital with its concerns about Calor's hours. As a result, the hospital conducted its own investigation and concluded that 670 hours had been overbilled. Paul McDowell, the hospital's chief financial officer (CFO), fired the doctor after she refused to meet with him.

The hospital notified Staff Care that Calor had been fired for suspicion of overbilling and withheld payment for the suspected overbilled hours. The agency in turn withheld payment to her in an amount equivalent to the overbilled hours.

Calor later sued Staff Care, the hospital, and the CFO for defamation and interference with contractual relations.

  • Defamation by writing is libel, and defamation communicated orally is slander. The elements for proving defamation are (1) defamatory language (2) about an individual that (3) is published and (4) causes injury to her reputation. Defamatory language is "published" when it's intentionally or negligently communicated to a party other than the defamed party.
  • Tortious interference with contractual relations occurs when a third party intentionally induces a contracting party to break a contract, causing damage to the relationship between the contracting parties.

At trial, Calor was awarded more than $500,000 for her claims against Staff Care, the hospital, and the CFO individually.

Court's decision

Defamation. On the defamation claim, the Kentucky Court of Appeals overturned the trial court's verdict on the grounds that each defending party was entitled to the protection of the "qualified privilege" defense. The court recognized that when parties have a "common interest" in the communication's subject matter, the speakers may not be sued for defamation. In the employment context, the court recognized that defamatory statements about an employee's conduct are subject to the common-interest privilege, provided the communications are made in good faith and without malice.

Both Staff Care and the hospital had a common interest in investigating Calor's billing practices because they were paying for the unsubstantiated services. Thus, their communications about the underlying facts and circumstances of the probe met the qualified privilege. Also, the court found no evidence that the communications involving the agency, the hospital, or the CFO were unreasonable or for an improper purpose. In other words, their communications were made in good faith.

In that regard, the court indicated that the immunity "is forfeited" if the party "steps outside the scope of the privilege, or abuses the occasion. The qualified privilege does not extend . . . to the publication of irrelevant defamatory matter with no bearing upon the public or private interest which is entitled to protection." In Calor's case, there was no evidence to cause a forfeiture of the privilege.

Contractual interference. The appeals court also overturned the trial court's verdict on the contractual interference claim. The court explained that a party is entitled to relief only if there is an improper interference with a contractual relationship. Also, the party that has allegedly interfered is afforded protection if it acted in good faith to assert a legally protected interest. The court agreed that Staff Care, the hospital, and the CFO were advancing a legitimate business interest when they communicated information about Calor's billing practices. Ashland Hospital Corp. v. Calor.

Bottom line

HR professionals and other managers engaging in communications about temporary or staffing agency employees should be particularly careful to limit those interactions to business matters and act in good faith. Although you have a privilege for common-interest communications, it can be lost if they're made for an improper purpose or stray beyond the private interest to be protected.


If you have any questions or need help, please contact any member of the Greenebaum Doll & McDonald Labor and Employment Department. 

Copyright 2007 M. Lee Smith Publishers LLC 
KENTUCKY EMPLOYMENT LAW LETTER does not attempt to offer solutions to individual problems but rather to provide information about current developments in Kentucky employment law.  Questions about individual problems should be addressed to the employment law attorney of your choice.

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