Legal Question in Business Law in California

Re: Defamation of Character

If I were advising the employer, I would say that disclosing information about the employees' affair was improper and could result in a lawsuit for some privacy tort such as "public disclosure of private facts" or the like.

If I were advising the employees, I would tell them that they might have grounds for a suit, but the chances of winning significant damages probably did not warrant the risk, expense and further disclosure and publicity that would result from such a suit going to trial.

The suit would probably not be for defamation of character as you suggest, unless the employer gave out information that was untrue, because truth is always a complete defense to libel or slander charges. However, under modern legal theory, suits can be filed and won for the unnecessary release of true but embarrassing facts about persons who are not public figures.