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.  

A Tale of Two ADA Claims Or The Role of an Employer’s Legitimate Expectations Under the ADA

Within the past week, the Sixth Circuit has decided two ADA cases.  In both cases, the employer argued that it terminated the plaintiff because the employee was not meeting its legitimate expectations. In both cases, the plaintiffs raised claims that the employer failed to accommodate their disabilities.  In one case, the Court found that the employer’s failure to approve the employee’s requested accommodation or explore any alternatives constituted direct evidence of discrimination and, therefore, her termination for violating a standard rule in violation of its legitimate expectations was also discriminatory without regard to how it treated other employees for violating the same rule.  In contrast, in the other case, the Court refused to consider the plaintiff’s accommodation claim because he was not meeting the employer’s legitimate performance expectations and the employer had spent a month discussing the requested accommodations with the employee.  In one case, the plaintiff prevailed, receiving over $275K in back pay and compensatory damages and over $445K in fees for her successful attorneys, but the other plaintiff’s claim was dismissed without an expensive trial.  More problematic for employers, however, is that the Court held that when an employer denies a reasonable accommodation, the employer’s termination of the employee for not complying with the neutral policy that should have been modified as an accommodation constitutes direct evidence of discrimination and the employer may not defend itself by arguing it had a legitimate reason or treated other employees the same. “Failure to consider the possibility of reasonable accommodation for known disabilities, if it leads to discharge for performance inadequacies resulting from the disabilities, amounts to a discharge solely because of the disabilities.”

This morning, the Court affirmed the dismissal of the ADA claims brought by an employee who had been terminated for never mastering his job duties eight weeks after he had been hired.   Most v. BWXT Nuclear Operations Group, Inc. , No. 18-3059 (6^th Cir. 8-15-18).  The plaintiff suffered from social anxiety disorder (which caused panic attacks, etc.)  and had been treated for several years.  Based on his job experience, he applied for a job and was trained at the same time as another new hire, who like most new hires, mastered their job duties within a couple of weeks.  The plaintiff, however, had not mastered them after 8 weeks.   He was the only programmer hired in the prior 8 years who had not mastered his duties within a month of being hired. 

He took a few days off to consider whether to proceed with this job.  When he returned, he disclosed his disability and requested accommodation of certain job requirements which had not been identified in the online job listing when he applied.   At least one of those accommodations was granted, but the Court’s opinion is unclear about others even though there had been discussions over several weeks.  The Court also noted that the HR Manager was exceedingly rude to the plaintiff during the first month after the plaintiff sought accommodation of his disorder.  After two months of not improving sufficiently to perform billable work, the employer requested documentation to prove his claimed social anxiety disorder and gave the plaintiff six days in which to produce such evidence (i.e., before May 31).  On May 31, the plaintiff reported that the clinic had closed, but he produced two years of prescriptions and made an appointment with his primary care physician to receive an updated diagnosis.  He was fired six days later for not meeting job expectations nine weeks after being hired, requesting and requiring an unreasonable accommodation (which his supervisor had already told him was granted) and failing to provide medical documentation to prove the existence or extent of his disability.

The Court affirmed summary judgment on the grounds that the plaintiff was not qualified for his position because he did not meet the legitimate performance expectations of his employer:

[He] puts forth no evidence of positive performance that conflicts with [the employer’s] negative evaluations of his performance.  He also does not submit evidence that he was qualified to do the job, other than his on-paper qualifications.  Rather, [his] deficient performance supports that he was unqualified to do the job.  [His] claim for disability discrimination thus fails as a matter of law.

The Court refused to consider his failure-to-accommodate claim because he had not shown “that he was qualified for the position with or without reasonable accommodation” in light of his poor job performance.

The Court rejected the retaliation claim because concerns of his deficient performance had been expressed before he disclosed his disability and requested accommodation and he had not, as discussed above, refuted that his performance was not meeting his employer’s expectations or showed that he was treated differently than a similarly-situated employee.  As for the mistreatment by the HR Director, “these statements, although imprudent when viewed standing alone, are insufficient to show that [the plaintiff’s] poor performance did not actually motivate [the employer’s] decision to terminate him” in light of his poor performance and the period of almost a month while the employer engaged in the interactive process.

In contrast, a week earlier, the Court affirmed a jury verdict in favor of a former cashier who was fired for violating the employer’s rule against consuming merchandise in front of customers during her shift because she wanted to self-treat her low blood sugar.  EEOC v. DolGenCorp, LLC, No. 17-6278 (6^th Cir. 8-7-18).  The employer’s summary rejection of the plaintiff’s requested accommodation and failure to explore alternatives effectively precluded it from convincing a jury that equally effective alternatives existed.

According to the Court’s opinion, the plaintiff was a type-II diabetic who had twice been previously hospitalized and was required to monitor her blood sugar, take insulin daily and monitor her diet to keep from shaking, seizing or passing out.  When she has an episode, her doctors recommended that she immediately take 100 calories of glucose.  Although other options were available, the plaintiff preferred to drink orange juice because it was easy to measure and took effect quickly.  She had worked for the employer since 2009 and had been promoted several times, to the point of being trusted to staff the store alone.  Prior to her most recent promotion, she would take quick breaks in the back when she required orange juice, but in her new role, she could not leave the front of the store unattended.  Accordingly, she requested permission to keep OJ at the cash register and was told that it was against company policy.

Nonetheless, while there were customers in the store when she was the only employee on duty, she suffered two hypoglycemic episodes.  Because she could not leave the front of the store unattended, she purchased OJ from the store cooler and drank it.   Both times, she later informed her General Manager without consequences.   During a later audit by the District Manager and Regional Loss Prevention Manager of merchandise shrinkage issues (i.e., shoplifting), she was told that she had been seen eating Little Debbie snack cakes at the register.  She denied that accusation but admitted to buying and drinking OJ during two medical emergencies.   This was found to violate the franchise “grazing policy,” which forbids employees from consuming merchandise in the store before paying for it, and she was immediately fired.

The employer argued that it had not been required to provide the requested accommodation – OJ at the cash register – when other accommodations were possible according to the plaintiff’s own nurse: “glucose tablets, or gels, honey, candy, and peanut butter crackers.”  However, by summarily rejecting the requested accommodation and failing to explore alternatives, there was no discussion of the well-established rule that employers are not required to grant the specific accommodation requested as long as the employee is provided with an effective accommodation.  There was also no discussion about these accommodations being ineffective (although the plaintiff argued that they were not as convenient as OJ).  Rather, the Court found that a jury could find these alternatives to violate the same rule that had been cited to deny the plaintiff permission to keep OJ at the cash register, even though that policy provided an explicit exception for disabilities depending on the circumstances.

The Court also rejected the employer’s argument that it had a valid reason for terminating her employment: that she violated the anti-grazing policy that applied to all employees (even though it provided exceptions for disabilities that were not granted to the plaintiff).

But a company may not illegitimately deny an employee a reasonable accommodation to a general policy and use that same policy as a neutral basis for firing him.  Imagine a school that lacked an elevator to accommodate a teacher with mobility problems.  It could not refuse to assign him to classrooms on the first floor, then turn around and fire him for being late to class after he took too long to climb the stairs between periods.  In the same way, Atkins never would have had a reason to buy the store’s orange juice during a medical emergency if Dollar General had allowed her to keep her own orange juice at the register or worked with her to find another solution.

                 . .. A defendant may use a legitimate, nondiscriminatory rationale as a shield against indirect or circumstantial evidence of discrimination.   . . . But a neutral policy is of no moment when an employee presents direct evidence of discrimination.   . . .  And failing to provide a protected employee a reasonable accommodation constitutes direct evidence of discrimination.   . . . .  Hence “failure to consider the possibility of reasonable accommodation for known disabilities, if it leads to discharge for performance inadequacies resulting from the disabilities, amounts to a discharge solely because of the disabilities.”

The failure-to-accommodate was all of the direct evidence required to prove the plaintiff’s case.  She was not required to show any disability-animus by the employer.  By way of example, if an employer refused to retain a blind employee because of the added expense of special software, the employer’s cost-justification for her termination would not preclude a finding that its failure to provide a reasonable accommodation (the software) was direct evidence of discrimination on account of her disability.

Accordingly, the Court refused to consider whether the non-grazing policy had been equally applied to other, non-disabled employees because those employees would not be similarly-situated and more importantly, such a comparison is only required when the plaintiff relies on an indirect or circumstantial burden of proof.  In this case, the employer’s failure to accommodate (or consider other accommodations) was direct evidence of discrimination.

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 Rejects Another Attack on Arbitration Agreements Involving FLSA Claims

This morning, the Sixth Circuit unsurprisingly granted the appeal of an employment services firm whose arbitration agreement was denied enforcement by the trial court in a collective FLSA action.  Gaffers v. Kelly Services, Inc., No. 16-2210 (6^th Cir. 8-15-18).  The Supreme Court’s decision earlier this year in Epic Systems rejected one of the legal arguments relied upon by the trial court: that arbitration agreements violate the NLRA when they preclude collective lawsuits.  This morning, the Sixth Circuit also reiterated that arbitration agreements are not precluded by the Fair Labor Standards Act either even though that statute also permits class action lawsuits. 

The plaintiff provided “virtual” call center support from home for the defendant employer.  He filed a lawsuit on behalf of himself and 1600 similar co-workers that he was not properly compensated under the FLSA for logging in and out of the employer’s computer network and during computer glitches.   Although he had never signed an arbitration agreement, about half of his co-workers had and the employer moved to refer those cases to individual arbitrations.  The trial court refused to enforce the arbitration agreements and the employer appealed.

The Supreme Court long ago held that the Federal Arbitration Act supported the enforcement of arbitration clauses in cases brought under the ADEA, which shares the exact same statutory enforcement  provisions with the FLSA.  Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 27 (1991).  In other words, when Congress adopted the ADEA, it incorporated the FLSA’s enforcement provisions.  Therefore, it is pretty clear that the FLSA does not preclude arbitration.

The Sixth Circuit refused to deny enforcement on policy grounds because Congress is supposed to set policy, not courts.   Court’s interpret statutes, not Congressional intent.   It also rejected the argument – rejected earlier this year by the Supreme Court – that the arbitration agreement should not be enforced on grounds of illegality.   It also refused to treat the arbitration agreement as an illegal waiver under the FLSA because FAA endorsed arbitration as lawful.

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.  

EEOC Obtains $1.1M Settlement for Male Employees Denied Equal Paid Baby Bonding Time as New Moms

Yesterday, the EEOC announced the $1.1M settlement of a class action lawsuit asserting reverse discrimination under the Equal Pay Act and Title VII in favor of 210 new fathers who were denied parental leave benefits provided to new mothers by the Estee Lauder Company. The EEOC alleged in the lawsuit that it filed in the Eastern District of Pennsylvania at Civil Action No. 2:17-cv-03897-JP that the employer provided “new fathers, less paid leave to bond with a newborn, or with a newly adopted or fostered child, than it provided new mothers. The parental leave at issue was separate from medical leave received by mothers for childbirth and related issues. The EEOC also alleged that the company unlawfully denied new fathers return-to-work benefits provided to new mothers, such as temporary modified work schedules, to ease the transition to work after the arrival of a new child and exhaustion of paid parental leave.”  In particular, male employees received two weeks of paid parental leave, compared to the six weeks of parental leave that female employees received after their medical leaves had ended.

The Consent Decree, which was entered yesterday, requires Estee Lauder to administer parental leave and return-to-work policies in a non-discriminatory manner.  Estee Lauder recently implemented “a revised parental leave policy that provides all eligible employees, regardless of gender or care­giver status, the same 20 weeks of paid leave for child bonding and the same six-week flexibility period upon returning to work. For biological mothers, these parental paid leave benefits begin after any period of medical leave occasioned by childbirth. The benefits apply retroactively to all employees who experi­enced a qualifying event (e.g. birth, adoption, foster placement) since Jan. 1, 2018. The decree also requires that Estée Lauder provide training on unlawful sex discrimination and allow monitoring by the EEOC.”

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

Supreme Court Round-up: Agency Fees Violate First Amendment and Money Does Not Include Stock Options

At the end of June, the Supreme Court issued two opinions, one of which had been years in the making.   A divided Court overruled Abood v. Detroit Bd. of Ed., 431 U. S. 209 (1977) and held that laws requiring public sector employees to pay agency fees to unions violate the non-union employee’s First  Amendment rights.  The problem of free riders (who get the benefits of union representation without sharing in its costs) and the desire for labor peace were found not to constitute compelling overriding justifications to require non-union employees to subsidize the speech and activities of private organization with which they disagree or object. “States and public-sector unions may no longer extract agency fees from nonconsenting employees.  . . . Neither an agency fee nor any other payment to the union may be deducted from a nonmember’s wages, nor may any other attempt be made to collect such a payment, unless the employee affirmatively consents to pay.”   Janus v. AFSCME Council 31, 585 U.S. ___ (2018).    In the second case, the Court was faced with a question under the Railroad Retirement Tax Act, which was enacted in 1937 before it became relatively common to compensate employees with stock options.  The Tax Act taxed “compensation,” which the Act defined as “money remuneration.”    A divided Court concluded that while money may include direct deposit, it does not include stock options.  Therefore, compensation to railroad employees by the award of stock options was not taxable under the RRTA. Wisconsin Central Ltd v. U.S., No 17-530 (June 21, 2018). 

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