Yesterday, a divided Sixth Circuit reversed an employer’s
summary judgment on pregnancy and sex discrimination claims despite the fact
that the plaintiff had signed a severance agreement and release in exchange for
severance pay which she did not return until more than a year later -- after
the EEOC investigation and a few weeks after she filed a lawsuit against her
former employer. McClellan
v. Midwest Machining, Inc., No. 17-1992
(6th Cir. 8-16-18). The
trial court found that the plaintiff’s release of claims had not been knowing
and voluntary because she had been pressured to sign the release in the same
meeting where she was terminated. Although
the trial court concluded that she had been required to tender back the
severance pay before filing suit, the Sixth Circuit disagreed. It found that, by returning the severance pay
and revoking the agreement within weeks of when her attorney was informed of
the agreement’s existence, she had satisfied the tender-back rule, if it even
applied to bar federal discrimination claims.
Rather, the amount of severance could be deducted from any monetary
award that she received during the litigation.
According to the Court’s opinion, the plaintiff had worked
in inside sales for the defendant employer for eight years with no disciplinary
actions. In August, she announced that
she was pregnant and her supervisor appeared annoyed when she missed work for
pre-natal appointments. In November, she
was called into the president’s office, informed that she was being terminated
and that she would only get severance pay if she signed the severance agreement
and release that day. Although the
president reviewed the terms with her, he did so quickly and shot down her
questions about the amount of her accrued vacation pay. The Release apparently did not explicitly
mention that it covered claims of discrimination because she testified that she
thought that that it only applied to wage claims.
She later filed an EEOC Charge and retained an attorney, who
filed a complaint asserting claims for pregnancy discrimination, pay
discrimination and a sex-segregated workplace.
When the employer notified her attorney about the severance agreement, the
plaintiff sent a letter to the employer rescinding the agreement and enclosing
a check in the full amount of the severance pay that she had received. The employer returned her check on the
grounds that there was no legal basis for rescinding the agreement.
The trial court denied the employer’s motion for summary
judgment on the grounds that there were disputed questions of fact as to
whether the plaintiff’s signature on the severance agreement release had been
knowing and voluntary in light of the economic and other pressure she felt to
sign the agreement during the termination meeting and the lack of clarity about
the release encompassing discrimination claims. However, the trial court granted the employer’s
summary judgment motion on the grounds that even if the severance agreement had
been voidable on grounds of involuntariness or duress, the common law tender
back doctrine required her to return the consideration that she received prior
to filing her lawsuit, not after, or she would be found to have ratified the
severance agreement by retaining the consideration.
The Sixth Circuit reversed. In its only prior reported decision applying
the tender-back doctrine to a federal employment discrimination release, the
court held that the tender back doctrine did not apply to a release of age
discrimination claims under ADEA. Raczak v. Ameritech Corp., 103 F.3d 1257
(6th Cir. 1997) (relying on Supreme Court decision in Hogue under the FELA). The
Supreme Court later refused to enforce a defective ADEA waiver (which did not
comply with the OWBPA) even though the plaintiff had similarly failed to tender
back the consideration that he had received prior to filing his ADEA
lawsuit. Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998). The only other Circuit to address the issue
to a Title VII claim had likewise found that the tender-back doctrine would not
bar a lawsuit. The Sixth Circuit found
the same policy considerations applied to prevent applying the tender-back rule
to federal sex discrimination claims.
In sum, we conclude that the language and reasoning of Oubre and Hogue apply equally to claims brought under Title VII and the
EPA. In Oubre, the Supreme Court was worried about “tempt[ing] employers to
risk noncompliance . . . knowing it will be difficult to repay the moneys and
rely[] on ratification.” 522 U.S. at
427. Similarly, we worry that requiring
recently discharged employees to return their severance before they can bring
claims under Title VII and the EPA would serve only to protect malfeasant
employers at the expense of employees’ statutory protections at the very time
that those employees are most economically vulnerable. We therefore hold that the tender-back
doctrine does not apply to claims brought under Title VII and the EPA. Rather, as the Supreme Court said in Hogue, “it is more consistent with the
objectives of the Act to hold . . . that . . . the sum paid shall be deducted
from any award determined to be due to the injured employee.” 390 U.S. at 518.
In any event, the Court found that the plaintiff’s return of
the $4,000 severance pay more than a year after she had been fired and only a
few weeks after she filed her lawsuit was sufficient to rescind the severance
agreement. “[F]ederal law does not
require that the tender back be before, or contemporaneous with, the filing of
the original complaint.”
The Oubre majority,
however, held that the party “elect[ing] avoidance” may tender back any
benefits received under the severance agreement not only before filing suit,
but at any point “within a reasonable time after learning of her rights.” 522 U.S. at 425 (emphasis added). This comports with the Restatement of
Contracts, which provides that “[t]he power of a party to avoid a contract for
. . . duress . . . is lost if, after the circumstances that made it voidable
have ceased to exist, he does not within a reasonable time manifest to the
other party his intention to avoid it.”
Restatement (Second) of Contracts § 381(1) (1981) (emphasis added).
Accordingly, even if Plaintiff were required to tender back
the consideration, she was required to do so not before filing suit but within
a “reasonable time” after she discovered that the severance agreement revoked
her right to bring a discrimination claim.
And given the district court’s factual finding that Plaintiff “did not
understand she had given up her right to sue for discrimination” until engaging
counsel to represent her in this matter, (R. 33, Second S. J. Order, PageID #
231), and that her counsel drafted a complaint immediately after speaking with
her, it stands to reason that Plaintiff’s offer to tender back the
consideration fell “within a reasonable time after learning of her rights,” Oubre, 522 U.S. at 425.
NOTICE: This
summary is designed merely to inform and alert you of recent legal
developments. It does not constitute legal advice and does not apply to any
particular situation because different facts could lead to different results.
Information here can be changed or amended without notice. Readers should
not act upon this information without legal advice. If you have any questions
about anything you have read, you should consult with or retain an employment
attorney.
