Right on Target: Employer not liable for investigating wallet theft

Ryan Frazier
Utah Employment Law Letter

Employee theft is a serious problem. Employers may suffer significant losses. When the victim is a third-party customer, the employer may lose customers, credibility, and goodwill. Either way, employers cannot look the other way but must be prepared to investigate employee theft and take prompt action when necessary. Theft is a legitimate reason for discharging an employee. Unfortunately, termination for theft does not prevent a lawsuit from the employee. The Utah Court of Appeals recently addressed a lawsuit involving allegations of employee theft.

In the case, the battle was not over whether theft constituted cause for the employee’s termination; instead, a central issue in the lawsuit was whether her relationship with the employer was at will. Utah, like several other states, is an employment-at-will state. At-will employment means that either the employer or the employee may terminate the employment relationship at any time for any reason or for no reason whatsoever. Typically, that means an employer’s termination decision is presumed to be valid. 

Occasionally, an employee attempts to test the limits of the at-will-employment doctrine. Here, the former employee argued that language in the employee handbook eliminated the at-will nature of her relationship. Read on to find out how the Utah Court of Appeals resolved these issues.

At-will employment

Target hired Susan Nelson to work at its retail store in Orem, starting in January 1997. When she was hired, she was given a copy of Target’s team member handbook. She signed an acknowledgment form confirming that she had read it.

The handbook states that each new employee has a 90-day learning period:

The first 90 days are when you learn your responsibilities and get acquainted with your fellow team members. It’s a chance for you and Target to see whether we make a good fit, whether you’re happy with your job and if your Team Leader is happy with your performance. If not, either you or Target may decide your employment shouldn’t continue beyond this 90-day learning period.

The handbook also expressly provides that all Target employees are “at will,” explaining that it means “team members can terminate the employment relationship at any time, for any or no reason [and] Target reserves the same right.” To further confirm that employment at Target is at will, the handbook states that team members “should not . . . interpret any verbal or written statement, policies, practices or procedures, including this handbook, as altering their ‘at-will’ status.” In addition, the handbook provides that it is “not a contract” and “doesn’t guarantee . . . employment for any particular length of time, or limit how employment may end.”

You can’t take it with you

On February 18, 2011, a Target customer contacted the security department to report that her wallet was missing. The customer suggested that she had left it at a checkout lane after paying for groceries. Target’s security team reviewed the store’s video surveillance of its checkout stands to investigate.

Video footage showed that the customer left her wallet at a checkout. Nelson, who was shopping after her shift, used the same checkout. The video showed Nelson removing her own wallet from her purse to pay for her purchases. She appeared to notice the other wallet, apparently left by the previous customer. She then appeared to glance at the cashier, who had turned away. At that moment, she picked up the lost wallet in her right hand while her own wallet was still in her left hand.

Nelson quickly placed the customer’s wallet into her purse in the shopping cart next to her. She completed her purchase by paying for her groceries out of her own wallet, which remained in her hand. She then returned her own wallet to her purse and left the store.

Target of the investigation

Target’s security team determined from the video footage that the person who took the customer’s wallet was Nelson, a store employee. A Target security officer called Nelson at home about the missing wallet. The security officer thought she acted surprised by the inquiry, but she admitted that she had the wallet. The security officer asked her to return it, and she complied within 10 minutes. She claimed she had confused the customer’s wallet with her own.

Target’s store security chief, Jason Turner, then became involved in the investigation. He reviewed video surveillance footage of the incident from several angles. He watched some of the video “over and over” to ensure that he was not mistaken in his conclusion that Nelson intentionally took the wallet. He also interviewed the security officer who asked her to return the wallet. Turner concluded from his investigation that there was “no way” she had taken the wallet by mistake. 

Turner and an HR representative interviewed Nelson on February 25, 2011, and Turner asked her to provide a written statement about the incident. In the statement, Nelson explained that she took the customer’s wallet by mistake, confusing it with her own wallet. She further wrote that she didn’t realize she had the wallet until she returned home.

Turner reviewed the statement and asked Nelson to orally explain her version of the wallet incident. He told her that he didn’t believe her based on his conclusions from the investigation. Nevertheless, she refused to amend her written statement. Turner left the meeting and returned a short time later with a supervisor, who told Nelson that Target was terminating her employment for taking the customer’s wallet.

Lawsuit attempts to paint bull’s-eye on Target

In April 2011, Nelson sued Target, asserting claims for breach of contract, negligent and intentional infliction of emotional distress, and defamation. Throughout the lawsuit, she continued to maintain that she inadvertently took the wallet and returned it promptly upon discovering that she had it. She claimed that Turner interrogated her at length and repeatedly accused her of being dishonest although he knew or should have known that she was telling the truth. She asserted that his accusations caused her to suffer emotional distress.

Nelson also alleged that Turner communicated to third parties information about her that was not true but was harmful to her reputation. Moreover, she alleged that Target breached implied terms in her employment contract that she would be treated fairly.

At some point in the lawsuit, Target filed a motion for summary judgment asking that the court dismiss each of Nelson’s claims. She opposed the motion and filed a Rule 56(f) motion requesting that the court hold off on ruling on the summary judgment motion until she could conduct more discovery (pretrial fact-finding such as taking depositions) to gather more evidence. She claimed that she wanted to take the depositions of two more witnesses whose testimony could help her rebut Target’s summary judgment motion. She also filed a motion seeking permission to supplement her lawsuit with a new assertion: She wanted to add a claim for breach of the covenant of good faith and fair dealing.

The court granted Target’s motion for summary judgment, dismissing each of Nelson’s claims. First, the court dismissed the breach of contract claim on the ground that she was an at-will employee who could be dismissed at any time for any reason. The court noted that the handbook “explicitly includes an at-will disclaimer.” The court also noted that Nelson did not point out any “specific manifestation of any intent to change the terms of her at-will employment."

Second, the court dismissed the emotional distress claim because the facts did not show that Target engaged in any conduct that was “so outrageous and intolerable that it would offend accepted standards of morality and decency.” Third, the court dismissed the defamation claim because any supposedly defamatory statements were conditionally privileged, meaning that under the circumstances, the statements were shielded from liability. The court concluded that the conditional privilege applied to Target’s statements during and in connection with its internal investigation of the wallet incident and Nelson could not prove that Target abused the privilege.

Further, the court denied Nelson’s Rule 56(f) motion. The court ruled that she had been allowed ample time for discovery under the case schedule. It also concluded that she had failed to show that additional discovery would have revealed evidence that would have helped her oppose the summary judgment motion.

Finally, the court denied Nelson’s request to add the claim for breach of the covenant of good faith and fair dealing. The court determined that amending the lawsuit to include the claim would be “futile” because such a claim would not have made it past a motion to dismiss. Specifically, the court concluded that the claim would be subject to dismissal because the covenant of good faith and fair dealing cannot change an at-will-employment contract without a specific employment period.

Nelson appealed the court’s rulings, and the appeal was assigned to the Utah Court of Appeals.

No breach of contract

On appeal, Nelson argued that the court should not have granted Target summary judgment on her breach of contract claim. Specifically, she argued that Target’s handbook and its counseling and corrective action policies created ambiguities in its employment policies, resulting in a fact question about whether she was an at will employee that should be decided at trial.

In deciding this claim, the Utah Court of Appeals first noted, “Utah law presumes ‘that all employment relationships entered into for an indefinite period of time are at-will, which means that an employer may terminate the employment for any reason (or no reason) except where prohibited by law.’” The appellate court explained that an employee can overcome this presumption only with evidence that she and the employer entered into an express or implied contract that she could be discharged only for cause or for other agreed-on conditions. 

Nelson pointed to the 90-day learning period language in the handbook and three other paragraphs to argue that the handbook created an “implied-in fact” employment agreement to rebut the at-will-employment presumption. One of the paragraphs she cited states: “We treat each other with respect so our guests always get a good feeling when they show up at Target.” Another paragraph she relied on states Target’s belief in an “open door policy” that results in “in two-way communication and fair dealing” and instructs employees to “ask [their] Team Leader” if they have “any questions
or difficulties on the job,” which ensures that the “door is always open.” Finally, she relied on a paragraph that describes Target’s counseling and corrective action policies as multitiered, setting forth “various matters . . . for
which employees can be terminated immediately [and] others for which they are to be counseled, and for which they get a final warning.”

The appellate court concluded that those provisions were inadequate to rebut the presumption that Nelson was an at-will employee. The court recognized that the handbook expressly provides that “all Target team members are ‘at-will’ team members.” It also recognized that the handbook informs employees that they should not “interpret any verbal or written statement, policies, or practices or procedures[,] including this handbook, as altering their ‘at-will’ status.” Nelson had signed a form acknowledging that she received and read the handbook when she started her employment at Target. That was sufficient for the court to rule that the paragraphs of the handbook she pointed to did not change the at-will relationship of the parties. The appellate court cited Utah law providing “a clear and conspicuous disclaimer in an employee handbook negates an employee’s contention that the employment relationship is other than at will.”

The court also noted that the paragraphs on which Nelson relied were not necessarily inconsistent with her status as an at-will employee. Thus, the court concluded that she was an at-will employee whom Target could discharge for any reason. Accordingly, the court affirmed the dismissal of her breach of contract claim.

No infliction of emotional distress

On appeal, Nelson argued that because Turner continued to interrogate her after he concluded that she had intentionally taken the wallet, the interrogation served no purpose but to inflict emotional distress. The appellate court noted that even if that were Turner’s purpose, Nelson would still be required to prove that his conduct during the interview was so “outrageous and intolerable in that [it] offend[s] against the generally accepted standards of decency and morality.” Such behavior is so extreme that it “evoke[s] outrage or revulsion.”

The court found Nelson did not prove that Turner’s conduct rose to the level of violating that standard. There was no evidence that he was “verbally abusive or unprofessional.” The court concluded that if, as Nelson suggested, he was interviewing her to prevent liability for her discharge, that was a legitimate purpose for the interview. Accordingly, the court affirmed the dismissal of the intentional infliction of emotional distress claim.

No defamation

Nelson argued on appeal that no privilege applies to statements made during the investigation or, alternatively, that Target abused any privilege by communicating the termination too broadly. The Utah Court of Appeals disagreed, explaining that a conditional privilege applies in these circumstances and Target did not abuse the privilege.

With regard to the existence of a privilege, the appellate court quoted the Utah Supreme Court as stating in Brehany v. Nordstrom, Inc., “The publication of a defamatory statement is conditionally or qualifiedly privileged
in certain situations in which a defendant seeks to vindicate or further an interest regarded as being sufficiently important to justify some latitude for making mistakes.” The supreme court also stated that the “qualified privilege
protects an employer’s communication to employees and to other interested parties concerning the reasons for an employee’s discharge.” The appellate court therefore concluded that Target’s internal communications about Nelson stealing the wallet were protected by a conditional privilege.

Nevertheless, the court noted that Target could still be liable if it acted with malice, made the statements to people who had no legally justified reason for receiving the information, or made the statements “with knowledge of [their] falsity or with reckless disregard as to [their] falsity.” Accordingly, Nelson argued that Target abused the privilege by telling uninvolved third parties, such as a security guard’s wife and other Target employees, about her discharge. However, she did not identify what the officer supposedly told his wife or why the information was supposedly defamatory. She also did not show that specific defamatory statements were disseminated to employees who did not have a need to know of the investigation. A certain amount of specificity is required to prove defamation in such situations. The court concluded that Nelson did not have enough to get past summary judgment on the defamation claim.

Further, Nelson did not prove that Target made statements knowing of their falsity or in reckless disregard of their truthfulness. The appellate court noted that the video surveillance footage was particularly convincing. Moreover, Nelson did not provide any evidence that Target ever had serious doubts about whether she intentionally took the wallet. Accordingly, the court affirmed the dismissal of the defamation claim.

Denial of motion to add claims

The appellate court affirmed the district court’s decision not to allow Nelson to add a claim for breach of the covenant of good faith and fair dealing. The appellate court confirmed the district court’s ruling that adding the claim would be futile. 

The covenant of good faith and fair dealing, which is inherent in every contract, cannot create obligations to which the parties did not agree. In light of the court’s ruling that Nelson was an at-will employee, the covenant does not prevent Target from exercising its right to terminate her employment for any reason or no reason. Thus, the claim was subject to dismissal, and the district court properly disallowed it.

Denial of Rule 56(f) motion

Again, a Rule 56(f) motion is a request for more time to conduct discovery before the court rules on a motion for summary judgment. In this case, Nelson wanted more time to take the depositions of at least two potential witnesses. She argued that the court’s denial of her Rule 56(f) motion was an “abuse of discretion.” On appeal, the Utah Court of Appeals will reverse the lower court’s ruling on such a motion only if the denial of the motion exceeds the “limits of reasonability.” 

Here, the court concluded that Nelson failed to identify any discoverable fact that would have helped her defeat Target’s summary judgment motion. Specifically, the court noted that she had not shown how any evidence from the two individuals whom she wanted to depose would change her status as an at-will employee. She also didn’t assert that the witnesses would assist her in proving the defamation claim. Consequently, the court of appeals affirmed the denial of the Rule 56(f) motion. Susan Nelson v. Target Corporation, 2014 UT App 205.

Lessons learned

Although employment relationships in Utah that are not for a specified term are presumptively at will, the presumption can be rebutted by an express or implied agreement. In this case, Nelson claimed that language in the handbook created ambiguities in Target’s policies about the existence of such an agreement that refuted her at-will employment. The court disagreed, concluding that the handbook contained unequivocal language that the relationship was, in fact, at will. 

This is a good reminder to all employers that employee handbooks should include a clear and conspicuous statement defining employment relationships as “at will” and noting that language in policies and the handbook should not be read to alter employees’ at-will status. Although that may be sufficient, employers should also ensure that handbooks and policies do not contain language that could be misconstrued as undermining or eviscerating the at-will nature of the employment relationship.

Further, the Nelson case also offers comforting reassurance that Utah courts will recognize and apply a conditional privilege for certain statements made during an internal investigation into theft. Employers simply need to ensure that they share information only with people who have a reason to know about the basis for an employee’s termination and that they don’t share information they know or have reason to know is false.

You can contact the author at rfrazier@kmclaw.com or 801-323-5933.


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