Waivers and Releases In Exchange for Severance Pay May Violate Title VII

No law requires employers to offer employees severance pay upon termination.  Where an employer has a severance pay plan, however, the obligation to pay severance is triggered upon a qualifying event as defined by the plan, policy or contract at issue.  In most cases, employers will only pay severance in exchange for a general release of employment discrimination claims.  Last week, in Henry v. Federal Reserve Bank of Atlanta 12-cv-1282 (M.D. Tenn., March 17, 2014), however, a judge ordered the employer to show cause why its attempts to obtain a waiver of claims that would have prevented the employee from recovering under Title VII in exchange for severance pay was not a per se act of retaliation.

The circumstances in Henry involved an employee who complained that he was being discriminated against on the basis of religious discrimination.  The employee filed a charge of discrimination with the Equal Employment Opportunity Commission (EEOC) on May 18, 2011.  On May 31, 2011, the employee received a notice that he was being terminated, effective July 31, 2011, which was the date the facility in which he worked would permanently close.  Apparently, the decision to terminate the employee had been made in January 2011.  Based on these facts, it would appear that the employer did not retaliate against the employee for filing an EEOC charge because the decision was made prior to his filing the charge.  However, the terms of his separation were problematic to the court.  According to the severance package the employee was offered, he was required to “waive [his] right to recover monetary or other damages” stemming from his Title VII claim.

Ultimately, the court was unable to substantiate the employee’s claim of religious discrimination.  The court, however, denied the employee’s motion to dismiss the retaliation claim, and further ordered the employer to show cause why its severance offer, which was contingent upon the waiver of claims, should not be deemed per se retaliatory.  The court reasoned that although it would not find every waiver in exchange for severance to constitute retaliation, in this case it appeared that the employee would have been entitled to the severance under the employer’s plan without the need to execute a release, and that the only reason the employer sought the release  was because of the employee’s claim of discrimination.  According to the court, the severance pay under the plan was “part and parcel of the employment relationship,” and by conditioning the employee’s entitlement to severance on the execution of a waiver, the employer basically deprived the employee of a benefit he would have gotten without the need to execute the waiver.  Simply stated, the plan entitled the employee to the severance regardless of whether he signed the release.  By requiring him to execute a waiver for those very benefits, it appears that the employee may have suffered retaliation.

This case is unusual to the extent that the employer is being order to explain to the court why a judgment on the retaliation claim should not be entered in the employee’s favor.  It also is a call to action for employers to review their severance pay plans, and make sure that in seeking a release, an employer should give the employee a benefit greater than that to which he or she would be already entitled to receive.  This quid pro quo is the basis for every contract.

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