Defamation of Character question?

Ok, so my brother recently quit his job. He was a manager of a used CD and Movie store that is part of a chain of stores. He had been asking for a raise for over a year and could not get one. He needed a better paying job and was given the oppritunity to have one. He quit his job with no warning, just called them one morning when he went in and told them it was his last day. We are in Kansas which is an "at will" employment state, but I gave him the lecture of not giving proper notice.

So, his former area manager told him that he had done over $500 in returns over the last 2 months and that "people don't just up and quit unless they are trying to hide something" and that he was going to turn him in to the police department, but not mention of what for. So I went into another store of that chain today to buy a CD and the guy was talking about a manager that had recently left. I asked if it was my brother, he said yeah and that their area manager said he was fired for theft. I mentioned this to my brother and he said a couple of the people he knew stil were saying they have been telling people in the company that he was fired for theft.

Is this legal? Can they divulge any information about why a person left, and even at that... FALSE information meant to make him look bad? My brother has made mistakes, but he is NO THIEF. It angers me that they did this to him. Is this a matter to just put behind and forget or should he pursue the issue of them telling other employess this?

Thank you in advance for your input.