Sixth Circuit: Employer’s Resentment of Work Employee Missed Due to Military Service Supported Imposing Wrongful Discharge Liability Under USERRA.

Earlier this month, the Sixth Circuit affirmed a bench trial verdict in a wrongful discharge case brought under USERRA by an employee who had been fired in part because of insubordination, but which the trial court found was motivated mostly by the employee’s missing work because of his national guard service. The Court, however, remanded the case for reconsideration of the $352,846 of damages imposed by the trial judge. Hance v. Norfolk Southern Railway Co., No. 07-5475 (6th Cir. 7/1/09). Although the employee’s alleged insubordination had been independently investigated and substantiated in a union arbitration, the Court believed there was sufficient evidence that the employer would not have terminated the employee for the alleged insubordination if his supervisor and manager had not both expressed resentment of the amount of work he missed because of his national guard service.

As stated by the Court:

On appeal, [the employer] argues that the district court erred in attributing antimilitary animus to [the employer]and in concluding that [the employer] failed to prove that a nondiscriminatory reason actually motivated the discharge. Regarding the attribution of anti-military animus to the company, [the employer] argues that [the plaintiff’s] immediate supervisor, lacked the authority to investigate or terminate [the plaintiff] and, therefore, that [the supervisor’s] anti-military animus cannot be imputed to the company. But in addition to evidence of [the supervisor’s] hostile attitude, testimony by union representative . . . indicated that Assistant Superintendent Bryson had also expressed concern about [the plaintiff’s] taking “too much time off for the military.” Significantly, Bryson was responsible for the decision to dismiss [the plaintiff]. This evidence of anti-military animus from a decisionmaker, combined with the close temporal relationship between [the plaintiff’s] two-week leave for military service and his discharge was legally sufficient to support the district court’s finding that [the plaintiff] was discharged in violation of USERRA.

The Court also refused to accord res judicata status to the labor arbitration which upheld the plaintiff’s discharge for insubordination. Although courts “accord broad deference” to arbitration decisions, the Court has

previously recognized as an exception to this rule that district courts are not bound by arbitration decisions in employment discrimination cases under Title VII or 42 U.S.C. § 1981. . . . “a federal court may, in the course of trying a Title VII or section 1981 action, reconsider evidence rejected by an arbitrator in previous proceedings.” Id. at 142. In the context of an employment discrimination case, deference is due to an arbitrator’s interpretation of provisions in a collective bargaining agreement or other employment contract, but Becton cautions that an arbitrator’s decision regarding “just cause” for termination is not equivalent to the inquiry and burden-shifting framework mandated by Congress in an employment discrimination case. See id. Hence, a federal court should not consider an arbitrator’s decision binding in a discrimination suit, because to do so would “unnecessarily limit[] the plaintiff’s opportunity to vindicate his statutory and constitutional rights.” Id.

In this case, the district court considered the arbitrator’s decision, the factual dispute over whether Hance’s reporting instructions were clear, and the evidence of anti-military animus by Hance’s superiors. Because the district court was not required to consider the arbitrator’s determination as conclusive, that determination could not prevent the court from holding – correctly, we conclude – that Norfolk Southern had failed to demonstrate a valid, nondiscriminatory basis for Hance’s dismissal, as measured by the standard required under section 4311(c)(1).

Insomniacs may read the decision in full at http://www.ca6.uscourts.gov/opinions.pdf/09a0224p-06.pdf

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.

Sixth Circuit: Employer Can Be Estopped From Denying FMLA Leave to Ineligible Employee, but Only If Employee Can Show Actual Reliance on Employer

Yesterday, the Sixth Circuit Court of Appeals again addressed the issue of whether an employer can be equitably estopped from denying FMLA to an ineligible employee (because the employer had fewer than 50 employees within 75 miles of the employee’s worksite). Dobrowski v. Jay Dee Contractors, Inc., No. 08-1806 (6th Cir. 7/8/09). Although the Court ultimately adopted a loose standard for applying the doctrine of equitable estoppel against an employer, it ultimately held that an employee -- who had been told in writing by his employer that he was eligible for FMLA leave and that his application for FMLA leave had been approved before he underwent an elective surgery -- could not benefit from the estoppel doctrine because he could not show that he actually relied upon the employer’s misrepresentations about his FMLA eligibility in that he had scheduled his surgery before his FMLA application had been approved.

In that case, the epileptic employee elected to have surgery that would decrease his chance to have seizures. He notified his employer months in advance and sought authorization for a medical leave of absence at a particular time. Although everyone seemed to assume that he would be granted a medical leave of absence, he sought definite clarification and specifically mentioned the FMLA. The employer ultimately asked him to complete an application for FMLA leave and confirmed in writing that he would be receiving FMLA leave for up to twelve weeks, his position would be held open for that period of time, that he was eligible for FMLA leave and that his FMLA application had been granted. However, when he was ready to return to work, the employer notified him that it had eliminated his position as the construction project winded down.

When the employee sued, the employer defended on the grounds that his position had been eliminated in the normal course of events (as it would have done even if he had not taken FMLA leave) and that he was not eligible for FMLA leave after all because the employer had not employed more than 50 employees within 75 miles of the employee’s worksite. The trial court granted summary judgment to the employer and the Court of Appeals affirmed.

The Court has followed two different equitable estoppel doctrines in FMLA cases. In one – taken from ERISA cases – the plaintiff must show that the employer essentially committed fraud or bad faith by making false statements of facts with knowledge of the true state of affairs and with an intent for the employee to rely on the false statements. In the more common description of the doctrine found in the Restatement of Torts:

If one person makes a definite misrepresentation of fact to another person having reason to believe that the other person will rely upon it and the other in reasonable reliance upon it does an act . . . the first person is not entitled
. . .
(b) to regain property or its value that the other acquired by the act, if the other in reliance upon the misrepresentation and before discovery of the truth has so changed his position that it would be unjust to deprive him of that which he thus acquired.

The Supreme Court has previously noted that, “the party claiming the estoppel must have relied on its adversary’s conduct in such a manner as to change his position for the worse, and that reliance must have been reasonable in that the party claiming the estoppel did not know nor should it have known that its adversary’s conduct was misleading.” Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51, 59 (1986). The Sixth Circuit found this to be the most appropriate standard since the employer is in the best position to evaluate the employee’s eligibility and “is the cheaper cost avoider.”

Nonetheless, in what can be described as a hypertechnical reading of the employee’s affidavit, the Court concluded that the employee could not show that he actually or detrimentally relied on the employer’s misstatement about his eligibility for FMLA leave because he scheduled the surgery before submitting his FMLA application and failed to include any statement in his affidavit that he would have canceled or rescheduled his surgery if his FMLA leave had been denied. As summarized by the Court:

There is no evidence in the record to show that he “change[d] his position” in reliance on the belief that his leave would be FMLA-protected. . . . Had he relied on the erroneous representations, one would expect [the employee] to be able to point to some action or statement that indicated that his decision to have the surgery was contingent on his understanding of his FMLA status; or perhaps evidence that raises an inference of such contingency – for example, a record that he made an inquiry as to his rights, asked for written confirmation of his leave arrangement, or changed his behavior after being told he was eligible. . . . At the very least, [the employee] could have placed an affidavit in the record stating that he would have forgone the surgery but for his belief that his job status was protected by the FMLA. See FED. R. CIV. P. 56(e). But none of this is present in the record.

If anything, the record shows that [the employee] had already decided on and scheduled the surgery by the time he was informed of his eligibility. There is no evidence of a discussion of the FMLA eligibility prior to the application for leave filed with [the employer] on September 27 – about three weeks prior to his October 15 surgery, and well after he informed the company of his planned absence. In deposition, [the employee] indicated that he knew that he would undergo the surgery about six months in advance, and told [his employer] as soon as he knew the date, “maybe three months before . . . the actual surgery.” ROA 291-92. At that time, he said “I got the okay so I will be having surgery on [October 15].” ROA 292. After his superiors asked questions about how long he planned to take off work, [the employee] organized a meeting to discuss his absence. His email preceding the meeting references his “operation coming up” and does not ask for permission to take leave, discuss his rights under the FMLA, or indicate a willingness to delay or reschedule depending on his legal status.

Although the employee argued “that because the surgery was elective, he could have rescheduled it had he known that he was not FMLA eligible. It is true in the abstract that he could have rescheduled it; but it is his burden on summary judgment to produce evidence supporting his estoppel claim, and the record must contain evidence permitting a finding that he would have.”

Insomniacs can read the full decision at http://www.ca6.uscourts.gov/opinions.pdf/09a0239p-06.pdf.

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.

Supreme Court: Fear of Race Discrimination Lawsuit Cannot Justify Reverse or Other Intentional Race Discrimination if Employer Has Valid Defenses.

In a highly anticipated decision, a 5-4 Supreme Court today reversed a summary judgment decision previously approved by the Supreme Court nominee Sonia Sotomayor. Ricci v. DeStafano, No. 07-1428. The lower courts had upheld the City of New Haven, Connecticut in failing to certify the results of a civil service promotional examination for firefighters on the grounds that the City was concerned that it would be sued for disparate impact race discrimination if it promoted any firefighters based on the test because mostly white and Hispanic firefighters passed the exam and only 9 of the 27 African-American firefighters passed. Because the City’s decision was based entirely on the race of the successful and unsuccessful test takers, it necessarily implicated the intentional discrimination provisions of Title VII of the Civil Right Act. The Court held that “race-based action like the City’s in this case is impermissible under Title VII unless the employer can demonstrate a strong basis in evidence that, had it not taken the action, it would have been liable under the disparate-impact statute.” The employer cannot justify its actions based solely on the fact that the potential plaintiffs can prove only a prima facie case of discrimination; rather, the employer must also consider its potential defenses before making a race-conscious decision. Because that “strong evidence” was lacking in this case, the Court not only reversed summary judgment for the City it directed that the plaintiffs were entitled to summary judgment on liability.

The Background

According to the Court’s decision, the City Charter required the City to promote firefighters into officer positions based on how they ranked on promotional examinations. The examination consisted of both written and oral portions and required a certain amount of prior job experience and education. The experienced consulting firm hired to design the test analyzed the jobs at issue by interviewing, questioning and observing the incumbent officers.

At every stage of the job analyses, IOS, by deliberate choice, oversampled minority firefighters to ensure that the results—which IOS would use to develop the examinations—would not unintentionally favor white candidates. . . .

For each test, IOS compiled a list of training manuals, Department procedures, and other materials to use as sources for the test questions. IOS presented the proposed sources to the New Haven fire chief and assistant fire chief for their approval. Then, using the approved sources, IOS drafted a multiple-choice test for each position. [Each test consisted of 100 questions and] was written below a 10th grade reading level. After IOS prepared the tests, the City opened a 3-month study period. It gave candidates a list that identified the source material for the questions, including the specific chapters from which the questions were taken.

IOS developed the oral examinations as well. These concentrated on job skills and abilities. Using the job analysis information, IOS wrote hypothetical situations to test incident-command skills, firefighting tactics, interpersonal skills, leadership, and management ability, among other things. Candidates would be presented with these hypotheticals and asked to respond before a panel of three assessors.

All of the assessors were from outside Connecticut and received special training. “Sixty-six percent of the panelists were minorities, and each of the nine three-member assessment panels contained two minority members” (i.e., one white, one Hispanic and one black).

Following the November 2003 examinations, 34 out of the 77 (or 44%) of the candidates passed the lieutenant examination: 25 out of 43 [58%] whites, 6 out of 19 [ 31.5%] blacks, and 3 out of 15 [20%] Hispanics. Because there were 8 vacancies at the time of the examination, the top ten scores were eligible for immediate promotion. All of them were white.

As for the captain exam, 22 of the 41 (or 54%) of the candidates passed: 16 out of 25 whites (64%), 3 out of 8 blacks (37.5%), and 3 out of 8 Hispanics (37.5%). Because there were seven captain vacancies at the time of the examination, 9 candidates were eligible to be considered for an immediate promotion to captain—7 whites and 2 Hispanics.

Although the City had a contractual right to a technical report from the consultant analyzing the test results, instead the City immediately objected to the facial racial disparity in the results. The City told the Civil Service Board that the test results had a disparate impact. Some firefighters – without knowing how they scored – advocated certifying the test results because they had spent a lot of money buying studying materials and a lot of time studying and a new test would take years to develop and administer. Others objected on the grounds that the study materials were too long and expensive. Some suggested that a validation study be conducted.

The Board ultimately requested the consultant to explain how the test had been developed and conducted and also requested an outside panel of experts to review the situation. One of those experts was a competitor of the consultant and he opined that the test results were not surprising, criticized the lack of local input into the test questions and suggested the use of an assessment center which required the candidates to demonstrate their knowledge instead of merely answering questions on a test or in an interview. Another witness – who was black – from the Department of Homeland Security said that the test reviewed relevant and job related information. He suggested that the disparity was somewhat related to the fact that more white candidates took the exam than black candidates. The final “expert” was a college professor who know nothing about firefighting, but who opined that “regardless of what kind of written test we give in this country . . . we can just about predict how many people will pass who are members of under-represented groups. And your data are not that inconsistent with what predictions would say were the case.” Although the results may have been influenced by the fact that the job analysis surveys were initially completed mostly by white firefighters, “no matter what test the City had administered, it would have revealed “a disparity between blacks and whites, Hispanics and whites,” particularly on a written test.” The Board deadlocked on whether to certify the test results, which meant that the results were not certified.

The Litigation

The plaintiffs – 17 white firefighters and 1 Hispanic firefighter – filed suit under §§ 1983 and 1985 and under Title VII against the City and other defendants. The District Court granted summary judgment to the defendants and it was affirmed on appeal. The Second Circuit then considered whether to reconsider the decision en banc, but voted 7-6 against reconsideration.

The issue as framed by the Supreme Court:

The City’s actions would violate the disparate-treatment prohibition of Title VII absent some valid defense. All the evidence demonstrates that the City chose not to certify the examination results because of the statistical disparity based on race—i.e., how minority candidates had performed when compared to white candidates. As the District Court put it, the City rejected the test results because “too many whites and not enough minorities would be promoted were the lists to be certified . . . Without some other justification, this express, race-based decisionmaking violates Title VII’s command that employers cannot take adverse employment actions because of an individual’s race.

While the lower courts found that intentional discrimination could be excused in order to potentially avoid disparate impact liability under Title VII, the Court did not think that this was necessarily so. The plaintiffs argued that it should never be a defense to intentional racial discrimination that the employer was attempting to avoid unintentional discrimination. The defense argued that good faith efforts to avoid unintentional disparate impact should excuse intentional race discrimination. The court found both parties’ arguments to be simplistic and unrealistic. It rejected racial quotas or employer practices seeking a preferred racial balance. It also refused to prefer the disparate treatment provisions of Title VII over the disparate impact provisions.

If an employer cannot rescore a test based on the candidates’ race, §2000e–2(l), then it follows a fortiori that it may not take the greater step of discarding the test altogether to achieve a more desirable racial distribution of promotion-eligible candidates—absent a strong basis in evidence that the test was deficient and that discarding the results is necessary to avoid violating the disparate impact provision. Restricting an employer’s ability to discard test results (and thereby discriminate against qualified candidates on the basis of their race) also is in keeping with Title VII’s express protection of bona fide promotional examinations.
. . .
We consider, therefore, whether the purpose to avoid disparate-impact liability excuses what otherwise would be prohibited disparate-treatment discrimination. Our task is to provide guidance to employers and courts for situations when these two prohibitions could be in conflict absent a rule to reconcile them. In providing this guidance our decision must be consistent with the important purpose of Title VII—that the workplace be an environment free of discrimination, where race is not a barrier to opportunity.

In reaching a compromise, the Court considered decisions in other areas where it had permitted intentional discrimination. “The Court has held that certain government actions to remedy past racial discrimination—actions that are themselves based on race—are constitutional only where there is a “‘strong basis in evidence’” that the remedial actions were necessary.”

Applying the strong-basis-in-evidence standard to Title VII gives effect to both the disparate-treatment and disparate-impact provisions, allowing violations of one in the name of compliance with the other only in certain, narrow circumstances. The standard leaves ample room for employers’ voluntary compliance efforts, which are essential to the statutory scheme and to Congress’s efforts to eradicate workplace discrimination. . . . And the standard appropriately constrains employers’ discretion in making race-based decisions: It limits that discretion to cases in which there is a strong basis in evidence of disparate-impact liability, but it is not so restrictive that it allows employers to act only when there is a provable, actual violation.

In this case, the City defended its actions on the grounds that the test results had a disparate impact on a racial class (i.e., a neutral practice has a statistically disproportionate affect on a particular group). However, the Court pointed out that the disparate statistics constituted only a prima facie case and that the employer could have defended the results by showing that the test was job related and consistent with business necessity. At that point, the plaintiffs would have had to show that “the employer refuses to adopt an available alternative employment practice that has less disparate impact and serves the employer’s legitimate needs.” In this case, there was no dispute that the group opposing the test results could have met a prima facie case and there was overwhelming evidence that the City could have met its burden of showing the job-related/business necessity defense. There was, however, a question about whether a reasonable alternative existed. The Court rejected challenges that weighing the written and oral portions of the exam differently might have produced different results or that utilizing an assessment center would have been available to the City at the time or produced a different result.

The problem for respondents is that a prima facie case of disparate-impact liability—essentially, a threshold showing of a significant statistical disparity, . . . and nothing more—is far from a strong basis in evidence that the City would have been liable under Title VII had it certified the results. That is because the City could be liable for disparate-impact discrimination only if the examinations were not job related and consistent with business necessity, or if there existed an equally valid, less-discriminatory alternative that served the City’s needs but that the City refused to adopt. §2000e–2(k)(1)(A), (C). We conclude there is no strong basis in evidence to establish that the test was deficient in either of these respects.
. . .
On the record before us, there is no genuine dispute that the City lacked a strong basis in evidence to believe it would face disparate-impact liability if it certified the examination results. In other words, there is no evidence —let alone the required strong basis in evidence—that the tests were flawed because they were not job-related or because other, equally valid and less discriminatory tests were available to the City. Fear of litigation alone cannot justify an employer’s reliance on race to the detriment of individuals who passed the examinations and qualified for promotions. The City’s discarding the test results was impermissible under Title VII, and summary judgment is appropriate for petitioners on their disparate-treatment claim.

The Court did not address the plaintiffs’ Equal Protection arguments and did

not hold that meeting the strong-basis-in-evidence standard would satisfy the Equal Protection Clause in a future case. . . . Nor do we question an employer’s affirmative efforts to ensure that all groups have a fair opportunity to apply for promotions and to participate in the process by which promotions will be made. But once that process has been established and employers have made clear their selection criteria, they may not then invalidate the test results, thus upsetting an employee’s legitimate expectation not to be judged on the basis of race. Doing so, absent a strong basis in evidence of an impermissible disparate impact, amounts to the sort of racial preference

While employers may consider how to make its employment testing and processes more fair, “under Title VII, before an employer can engage in intentional discrimination for the asserted purpose of avoiding or remedying an unintentional disparate impact, the employer must have a strong basis in evidence to believe it will be subject to disparate-impact liability if it fails to take the race-conscious, discriminatory action.”

Insomniacs can read the full decision at http://http://Ricci.

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.

Supreme Court: ADEA Does Not Allow Mixed Motive Theory; Plaintiff Must Prove Age Was “But For” Reason for Adverse Action.

This morning, a 5-4 Supreme Court ruled that the Age Discrimination in Employment Act (ADEA) is different from Title VII in another important respect: While Title VII permits a plaintiff to prove that illegal discrimination was a motivating factor (albeit not the sole factor) in his or her adverse employment action, ADEA requires the plaintiff to prove that s/he would not have suffered the adverse action “but for” his or her age. Gross v. FBL Financial Services, Inc., No. 08-441 (6/18/09).

In Gross, the plaintiff alleged that he was demoted primarily because of his age, although he admitted that his age was not the only factor. This is often known as a mixed-motive case and is a theory that was established in the plurality opinion of the Price-Waterhouse v. Hopkins case. The trial court instructed the jury that it must rule for the employee if he proved that “his age was a motivating factor in the demotion decision,” and “that age was a motivating factor if it played a part in the demotion.” The trial court also instructed the jury to return a verdict for the employer “if it proved that it would have demoted Gross regardless of age.” In other words, the employer bore the burden of proving that age was not the primary motivating factor even if it was a small factor. The jury returned a verdict for Gross, awarding him$46,945 in lost compensation. The employer appealed and the Court of Appeals reversed.

Justice Thomas began his opinion by noting that ‘[t]he question presented by the [employee] in this case is whether a plaintiff must present direct evidence of age discrimination [as opposed to circumstantial evidence] in order to obtain a mixed-motives jury instruction in a suit brought under the” ADEA. However, the Court never needed to reach that question because it held that “such a jury instruction is never proper in an ADEA case.”

“

Unlike Title VII, the ADEA’s text does not provide that a plaintiff may establish discrimination by showing that age was simply a motivating factor. Moreover, Congress neglected to add such a provision to the ADEA when it amended Title VII to add §§2000e–2(m) and 2000e–5(g)(2)(B), even though it contemporaneously amended the ADEA in several ways, see Civil Rights Act of 1991 . . . We cannot ignore Congress’ decision to amend Title VII’s relevant provisions but not make similar changes to the ADEA. When Congress amends one statutory provision but not another, it is presumed to have acted intentionally.”

“The ADEA provides, in relevant part, that ‘[i]t shall be unlawful for an employer . . . to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age.’ 29 U. S. C. §623(a)(1) (emphasis added). . . . To establish a disparate treatment claim under the plain language of the ADEA, therefore, a plaintiff must prove that age was the “but-for” cause of the employer’s adverse decision.”

“[Nothing in the statute’s text indicates that Congress has carved out an exception to that rule for a subset of ADEA cases. Where the statutory text is ‘silent on the allocation of the burden of persuasion,’ we “begin with the ordinary default rule that plaintiffs bear the risk of failing to prove their claims.”

Moreover, “the burden of persuasion necessary to establish employer liability is the same in alleged mixed-motives cases as in any other ADEA disparate-treatment action. A plaintiff must prove by a preponderance of the evidence (which may be direct or circumstantial), that age was the “but-for” cause of the challenged employer decision.”

Insomniacs can read the full decision at http://www.supremecourtus.gov/opinions/08pdf/08-441.pdf.

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.

Franklin County Appeals Court: Doesn’t Pay to Be Too Clever By Half

Last week, the Franklin County Court of Appeals ruled in favor of the defendant employer and ordered the rescission of a severance agreement where a typographical error in the agreement provided the employee with twelve extra months of severance pay which the employer had not intended to provide. Faivre v. DEX Corp. Northeast, 2009-Ohio-2660 (6/9/09). The employee admittedly had been told that the employer was only offering him three months of severance and he indicated that he would need to have at least twelve months. When he reviewed the agreement in detail after returning home, he realized that the offered severance agreement (which had been drafted by the employer and had already been signed by the employer’s Senior Vice President of Human Resources) promised to pay him severance through 2007 instead of three months later in 2006. Rather than clarifying the issue with the employer, he instead signed and returned the agreement. Quickly realizing its error, the employer immediately asked him to sign a revised page and said that if he did not agree to reform the agreement, it would consider the agreement to be rescinded due to mistake.

Instead, the employee filed suit against the employer for breach of contract. The trial court ruled in favor of the employer, but ordered a reformation of the contract to provide for the three months of severance pay initially offered by the employer. Both sides appealed. On appeal the court of appeals agreed that the parole evidence rule – which typically would bar extrinsic or outside evidence to contradict the clear terms of a contract – did not bar evidence of mistake. In this case, the employer made a mistake and the employee was admittedly aware of the mistake.

The court also agreed that the trial court had authority to reform the contract. However, the court found that was not a proper remedy because there had never been a mutual agreement on the amount of severance. The employer offered three months and the employee wanted twelve. Because there had never been a “meeting of the minds,” there could be no contract to resurrect by reformation.

The court agreed to rescind the contract altogether (meaning the employee would receive no severance). This was pursuant to a Restatement provision:

Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable
by him if he does not bear the risk of the mistake . . .

Thus, unless the mistaken party bears the risk of a mistake, a court may rescind a contract if: (1) one party made a mistake at the time the parties executed the contract, (2) the mistake had a material effect on the agreed exchange of performances that was adverse to the mistaken party, and (3) the other party had reason to know of the mistake.

The court rejected the employee’s argument that the employer had assumed the risk of mistake when it unilaterally prepared and presented the agreement. First, the employee knew about the mistake because the agreement’s terms did not match what he had been told in his exit interview. Finally, the court refused to put the risk on the employer even though it negligently drafted the agreement: “Pursuant to Section 154 of the Second Restatement of Contracts:

A party bears the risk of a mistake when

(a) the risk is allocated to him by agreement of the
parties, or
(b) he is aware, at the time the contract is made, that
he has only limited knowledge with respect to the facts to
which the mistake relates but treats his limited knowledge as
sufficient, or
(c) the risk is allocated to him by the court on the
ground that it is reasonable in the circumstances to do so.

. . .

Subsection (c) is a "catchall provision" that permits a court to allocate the
risk of a mistake to the mistaken party if, under the totality of the circumstances, it would be more equitable or reasonable to do so. . . . " '[A] party's negligence is immaterial where the mistake is in the expression of the contract and the other party knew of the mistake and took advantage of it.' "

. . .

As we concluded above, [the employee] had reason to know that the severance agreement contained a typographical error. Instead of seeking clarification regarding the length of the severance period, [the employee] attempted to take advantage of [the employer’s] error. Therefore, equity and reasonableness do not require us to place the risk of the mistake on [the employer] due to its negligence.

Insomniacs can read the full decision at http://www.sconet.state.oh.us/rod/docs/pdf/10/2009/2009-ohio-2660.pdf

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.