The U.S. Supreme Court heard oral arguments on Tuesday in a case that could potentially alter how courts—as well as how HR managers and CEOs—define employee retaliation under federal law. The case, Thompson v. North American Stainless LP, could also affect how employee relationships come into play when one employee sues a company.

The story begins in 1997 when Eric Thomspon was hired by North American Stainless in Carroll County, Kentucky. Three years later the company hired Miriam Regalado. The two employees soon entered into a relationship, and eventually became in engaged. In February 2003, Regalado sued the company, alleging gender discrimination. Three weeks after North American Stainless was informed of her lawsuit, the company fired Thompson.

Thompson took his case to court. In his intitial suit in the U.S. District Court for the Eastern District of Kentucky, he argued that he was wrongfully terminated under Title VII, the 1964 employee discrimination act. But the court dismissed his complaint. It held that Title VII doesn't permit any claims of third-party retaliation.

Next, Thompson took his case to the U.S. Court of Appeals for the Sixth Circuit, which sided with the lower court. In June 2010, the U.S. Supreme Court granted to hear the case.

Eric Schnapper, Thompson's lawyer and a professor at the University of Washington, opened the dialogue by claiming Thompson was "aggrieved" by his employer, and thus deserves to be considered under Title VII. 

"He's not suggesting that he would be wronged if he were ever fired at all," Schapper told the court.  "He is aggrieved because he was fired for a reason that was an improper reason."

But the Justices seemed reluctant to allow this line of reasoning, because they feared it would put employers in an impracticable position whenever they fired someone.

"Put yourself in the shoes of an employer," said Justice Samuel A. Alito, Jr.. "You want to take an adverse employment action against Employee A. You think you have good grounds for doing that, but before you do it, you want to know whether you're potentially opening yourself up to a retaliation claim."

He continued, noting the implausibility of opening up a claim of retaliation for every kind of employee relationship. "Does the employer have to keep a journal on the intimate or casual relationships between all of its employees, so that it knows what it's opening itself up to when it wants to take an action against someone?"

The court also debated what kind of relationships would count—a spouse? A friend? A pal?

"Can you help provide where the clear line is?" asked Justice Alito. "Does it include somebody who just has lunch in the cafeteria every day with the person who engaged in the protected conduct? Somebody who once dated the person who engaged in the protected conduct?"

Leondra Kruger, the U.S. federal attorney representing Thompson, argued the relationship in this case was strong enough to warrant a claim of retaliation. "The reason the relationship is important in this case is because it tends to render plausible the argument that there's a causal connection between the adverse action visited on Thompson in this case," she said. Marcia Coycle, an editor at the National Law Journal, noted in a recent PBS interview that "retaliation complaints are the fastest growing category of discrimination complaints today."

The defense maintained the line of reasoning that had defeated Thompson in the lower courts. They asserted that the court's previous rulings show that Title VII does not cover third-party employee retaliation.

Leigh Gross Latherow, representing the company, argued that Thompson did not engage in "protected conduct" (i.e. he himself was not discriminated against), and therefore should be considered ineligible to sue the company under this defense.

The case could have legal implications for employers and employees across the country. If Thompson wins, employees who are fired could gain a legal foothold when arguing they were terminated because of retaliation for another employee's behavior.