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After you have terminated an employee and they have filed suit against you, can you file a counterclaim against the employee without being found guilty of retaliation? This is a question employers frequently ask in the midst of employment litigation. The controlling federal appellate court for Texas recently answered this question affirmatively.

Juan Hernandez worked as a manual laborer at Crawford’s lumber yard. Crawford eventually became dissatisfied with Hernandez’s performance and fired him after he incorrectly cut a roll of carpet and failed to report the mistake. Hernandez sued Crawford for age discrimination under the Age Discrimination in Employment Act.

Crawford subsequently learned Hernandez was stealing building materials from Crawford and reselling them. Consequently, Crawford amended its response to add a counter-claim against Hernandez for theft. Hernandez denied the theft charges and countered with a retaliation claim, alleging Crawford’s theft charges were retaliatory under the age discrimination statute.

The trial court dismissed Crawford’s theft claim due to a lack of evidence. At trial, the jury denied Hernandez’s discrimination claims, but ultimately found in favor of him on his retaliation claim, awarding him $75,000 in compensatory and punitive damages. Crawford appealed. The appellate court held that filing suit against an employee after they have already been discharged does not constitute retaliatory conduct under federal anti-discrimination laws because the plaintiff is no longer an employee and cannot, therefore, be subjected to an adverse employment decision which, is a fundamental element of a retaliation claim. Adverse employment decisions that can, however, be considered retaliatory include denying leave, suspending and discharging employees.

While this case is good news for employers, the Court did caution that other federal courts have allowed retaliation claims to proceed against employers who have filed counterclaims against employees under similar circumstances.

The bottom line is that an employer should proceed with great caution in taking legal action against an employee who has sued the company. There may be more to lose than gain in the process, especially in this context where the $75,000 adverse judgment was more than the value of the stolen materials, not to mention the additional litigation costs for the appeal.

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