Divided Sixth Circuit Permits Rescission of Severance Agreement Release When Severance Pay Was Tendered Back A Few Weeks After Sex Discrimination Lawsuit Was Filed

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 (6^th 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.  

Sixth Circuit: Union Can Challenge RIF and Non-Recall of Employees Except Where Employees Signed Release

Last week, the Sixth Circuit Court of Appeals reversed a summary judgment in favor of an employer against a union which challenged the layoff and non-recall of five union employees during a reduction in force.  International Union, UAW v. General Motors LLC, No. 12-2327 (6^th Cir. 7-10-13). The plaintiffs had been laid off out of order of seniority purportedly because they were not capable of performing work being performed after a reorganization.  They were not recalled to work in inverse order of seniority for the same reason.  The Court found that the union raised a material issue of fact about whether the employees were qualified to perform work that was being performed in the factory after the reorganization and by less senior employees who were recalled to work.   However, because two of the employees had signed a release in connection with their separation which waived their right to challenge their termination and any right to future employment, their individual claims were barred.

The union introduced four pieces of evidence which contradicted the employer’s position that the employees were incapable of performing work that remained in the factory.  First, it was undisputed that the employees were competent and performed their former jobs acceptably prior to the reorganization.   Second, the union proffered an affidavit by a line-employee stating that work previously performed by the five employees was still being performed, other than that all employees had to learn a new computer program.   The Court found the district court erred in excluding his testimony on the grounds that he was not a “supervisor” and was unqualified to explain whether any jobs consisted solely of novice-level work.  Third, the employer had recalled novice-level employees with less seniority. While the union might have been incorrect, that was an issue of credibility.  Finally, the union disputed the employer’s characterization of the employees’ qualifications since they were rated higher than the employer now claimed.  While the union might have been utilizing outdated information, that argument again went to credibility and weight instead of materiality.

Two of the five employees received severance pay in exchange for signing a release of claims that contained, in part, language that barred all:

 “claims, grievances, lawsuits, demands and causes of action, whether known or unknown . . . in any way relating to [the] employment and/or separations from General Motors Corporation . . .  .  “I understand that GM does not intend for me to be eligible at any time in the future for reemployment by GM . . . .”

The Court rejected the argument that the releases could not waive post-termination claims because the employees were aware of their recall rights at the time they signed the release and were aware that they were signing away their right to future employment.

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 change or be 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.

NLRB Dismisses Discriminatory Discharge Charges Because Discharged Employees Signed Releases of Claims in Severance Agreements.

Last Fall, the NLRB issued a surprising decision dismissing the Unfair Labor Practice Charges filed on behalf of 37 employees who purportedly had been laid off on account of their union activities because they had signed releases of claims in their severance agreements before any ULP Charge had been filed or even contemplated. BP Amoco Chemical–Chocolate Bayou, 351 NLRB No. 39 (Sept. 29, 2007). In doing so, the Board applied the same four-factor standard it applies to releases negotiated by the Board’s General Counsel following the filing of ULP Charges:

(1) “Whether the parties to the Board case have agreed to be bound, and the position taken by the General Counsel regarding settlement.” “Tere is no dispute that the alleged discriminatees voluntarily agreed to be bound [to the severance agreements]. Not only did each of them sign the agreement, but, as the parties stipulated, they were aware of the content, advised of the meaning [by their individual attorneys and/or the union], and knew that they were waiving and releasing claims against the Respondent.

(2) “Whether the settlement is reasonable in light of the violations alleged, the risks inherent in litigation, and the stage of litigation.” “At the time the agreements were signed, no charges had been filed, and the prospect of litigation was not obvious. Moreover, there was significant risk that a charge alleging discriminatory selection would not be meritorious. Little or no union activity was occurring at the time of the downsizing, and the record does not show that all of the alleged discriminatees had engaged in protected activity or that the Respondent was aware of it. . . . Indeed, the General Counsel acknowledged weaknesses in the case, conceding that “[w]e do not have a smoking gun” and that many of the alleged discriminatees had work histories which were “less than pristine.”

(3) “Whether there has been any fraud, coercion, or duress by any party in reaching the settlement.” “Respondent encouraged the alleged discriminatees to consult attorneys, provided them sufficient time [of 45 days] to carefully review and assess the agreements, and provided them with the opportunity to revoke the agreements within a reasonable period after execution.”

And (4) “Whether the respondent has a history of violating the Act or has previously breached settlement agreements.”

Insomniacs may read the full decision at: http://www.nlrb.gov/research/decisions/board_decisions/template_html.aspx?file=http://www.nlrb.gov/shared_files/Board%20Decisions/351/v35139.htm&size=294.

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. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with an attorney.