The term defamation of character is often used to describe accusations of slander, libel or both. Slander involves verbal derogatory statements, while libel involves written ones. In a court of law, the plaintiff pursuing the lawsuit would charge defamation of character to cover any form of false or damaging allegations.
Defamation of character is notoriously difficult to prove in court, although the actual effects can be quite evident and damaging. If a disgruntled customer of a restaurant tells numerous people that the head chef has AIDS, for example, sales for that restaurant could fall and the employee might lose his job or find it difficult to work. Because the customer's slanderous statement concerns a specific person and an unproven accusation, the chef may have a legitimate case of defamation of character.
The main problem with proving defamation of character is the protection of free speech guaranteed by the First Amendment. Courts generally agree that an opinion, no matter how malicious, is not the same as a stated fact. If the disgruntled customer had said "Don't eat at Joe's Cafe. I think the food is lousy and the chef is sick," then defamation of character would be difficult to prove. Other people can still form different opinions. Once the customer said "Don't eat at Joe's Cafe. I know the chef and he has AIDS," then a statement of fact has occurred and a claim of defamation of character can be pursued.
Another problem concerning defamation of character is the actual truth of the statement. Some may argue that in order for defamation of character to occur, the alleged victim actually has to have character to defame in the first place. Calling a known neighborhood bully a 'thug' in the local paper wouldn't qualify as defamation of character, because it isn't a statement against fact. The truth is, the truthfulness of the statement isn't always a factor in actual court proceedings. In our hypothetical case, the court would assume the chef does not in fact have AIDS and the defendant knew this at the time the statements were made.
Very few defamation of character lawsuits actually reach the level of a court trial. Many are settled privately, in order to avoid even more damage from publicity. Since actual damages must be demonstrated, some cases are dismissed because the statements or accusations do not rise to the level of actual slander or libel. Hurt feelings or a loss of social standing may not reach the legal definition of damages. What few defamation of character cases do reach the court system are usually local in nature, such as a city councilman suing his local newspaper for implying he accepted a bribe.
In our case of the chef and the disgruntled customer, damages could most likely be demonstrated by restaurant sales records and testimony from other customers who heard the slanderous statements firsthand. Even if medical tests revealed that the chef did indeed have a medical condition, that fact alone would not mitigate the customer's obvious malicious intent. The customer was not working in the public's best interest at the time. Under these circumstances, the court would most likely find in favor of the plaintiff and order the defendant to pay punitive damages.
This is generally the same legal mechanism which allows celebrities to successfully sue tabloid publications. A truthful but malicious statement can still be considered defamation of character under the right circumstances.