Have you ever had to let an employee go? If you haven’t, chances are you will at some point. Do you or would you give severance pay? If so, hopefully you get a signed severance agreement that includes a release from your soon-to-be former employee. I’ve written here, here and here about severance agreements. This post is a bit different though. What if you do give the severance payment and you do get the signed agreement with the release and the employee still sues? That’s easy, you might be thinking. I move to dismiss the lawsuit, because the employee signed a release. Most of the time, that’s the right answer, but not always. This week I want to tell you about a case where an employee was allowed to sue her former employer even after she signed a release and got her severance payment. Read on, so we can make sure you don’t end up in the same situation…
The name of the case is McClellan v Midwest Machining. Here’s what went down:
Jenna McClellan began working for Midwest Machining as a telemarketer in 2008 and soon received a promotion to the company’s inside sales department. In 2015 she announced she was pregnant. Her supervisor allegedly made many negative comments in the following weeks and displayed annoyance at her absences for pre-natal appointments. Three months later, the company fired her, in spite of her good performance record and absence of any disciplinary issues. Ms. McClellan was offered and she did sign a severance agreement that contained a release of claims. She also received her severance pay. Then she sued Midwest Machining, for violations of Title VII as amended by the Pregnancy Discrimination Act and for violations of the Equal Pay Act. Predictably, Midwest Machining moved for summary judgment to get the case dismissed. Midwest Machining argued that Ms. McClellan had to return the severance payment if she wanted to sue. The United States District Court granted Midwest’s motion, and Ms. McClellan appealed to the Sixth Circuit Court of Appeals. The Sixth Circuit reversed the District Court’s ruling. Here’s why:
There’s more to the allegations, as you probably gathered. Ms. McClellan alleged that on the day of her termination Midwest’s president presented her with a severance agreement and told her that if she wanted her severance payment that she “needed to sign it [then]”. While Midwest’s president and Ms. McClellan reviewed the agreement together, allegedly the president did not ensure Ms. McClellan’s understanding, as they “went along at a rapid pace”. Ms. McClellan said that she felt “bullied” during the meeting and that she could not ask questions, that the president’s voice was “raised”, that when she said “I still should have had one week [of vacation] left”, the president forcefully said “You do not” and moved on. Ms. McClellan said that the president shut the door so she did not feel free to leave the meeting, and that she signed the severance agreement, because she felt pressured to do so.
The court dealt with the question of whether an employee has to give back severance money before filing a lawsuit. This is known as the “tender back” doctrine. It applies under common law and generally in commercial cases. The EEOC takes the position that the tender back doctrine does not apply to discrimination claims. The Sixth Circuit has now joined the Eighth Circuit and the EEOC. (The US Supreme Court previously ruled that the tender back doctrine does not apply to ADEA claims). Most posts on this case focus on this issue. It’s understandable, but I think this case has some other lessons for employers.
I want to talk about something the Sixth Circuit did not address. A court is only supposed to grant summary judgment if there are no significant facts in dispute–because then the judge can apply the law and make a ruling. There were signficant facts in dispute, though. Severance agreements containing releases have to be signed knowingly and voluntarily. There definitely seems to be a dispute here as to whether that happens. If Ms. McClellan’s statements are truthful and accurate, she was not given an opportunity to have the agreement reviewed by an attorney, and she was pressured into signing the agreement right then and there. It does not appear that there was a revocation period either. Severance agreements and releases signed under those circumstances are unenforceable, and therefore will not protect an employer against lawsuits. (I am assuming that the court didn’t address this issue, because, having decided that Ms. McClellan could proceed with her claim without tendering back the severance pay, it saw no need to even look at this issue.)
So what does this all mean? If Ms. McClellan’s allegations are true, Midwest sabotaged itself. Yes, a severance agreement with a clear release of claims can protect you from lawsuits, but if you pressure your employee to sign the agreement then and there and you don’t give the employee any chance to review it with an attorney, if you don’t allow any questions and if you use forceful tactics such as the ones said to have been used here, don’t rely on that release to protect you later. It’s like your mother may have told you, very often “It’s not what you say, but the way you say it”. (Don’t roll your eyes, Mom has a point here.)
I think I made my point. See you next week.
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