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Severance Agreement: To take or not to take?

 

If you have ever been in the unfortunate position of being let go, laid off, or terminated, you know that it is a devastating moment.  Often times, it can happen without you having a hint of it.  Other times, it can happen because of employment discrimination or in retaliation for your report of misconduct by the employer.  Regardless of the reason, you may have to ask yourself how you are going to pay your bills, and whether or not you should accept a severance agreement.

Severance agreements, which generally release the employer from any claims you may bring against them in exchange for money, are common today.  Because most Americans are unable to save money for retirement or emergencies, severance agreements are more tempting now than ever.  This fact, along with others, helped to determine the 6th Circuit Court of Appeal’s recent decision in McClellan v. Midwest Machining, Inc.

 

Analysis

 

In McClellan, the Plaintiff brought claims against her former employer under Title VII of the Civil Rights Act of 1964, as amended by the Pregnancy Discrimination Act, and the Equal Pay Act.  In her complaint, she alleged that soon after she announced she was pregnant, her supervisor became annoyed of her prenatal appointments and would make offhand comments about her “perfect life”.  Within three months of her announcement, McClellan was terminated.  In addition to the discrimination related to her pregnancy, McClellan also alleged that the workplace was segregated by gender, and that men were paid commissions and more in general than women.

When McClellan was terminated, she had a meeting with the president of Midwest.  In the meeting, she was presented with a severance agreement and told that she needed to sign it to receive $4,000 paid in 8 weekly installments.  McClellan claimed that she was not fully aware of the extent of the release, and was not given an opportunity to question the agreement or consult with an attorney about the agreement.  Feeling pressured and bullied in the meeting, McClellan eventually signed the severance agreement.

After McClellan filed the complaint, attorneys for Midwest eventually tried to get the case dismissed.  They argued that the case should be dismissed because she signed a severance agreement and because she did not tender back the money she received from the agreement.  The tender back rule essentially says that if you want to file a lawsuit, you have to return any money you received that was exchanged so that you would not file a lawsuit.  The lower court agreed and dismissed the case because McClellan did not tender back the $4,000 she received.

McClellan appealed the lower court decision, leading the 6th Circuit Court of Appeals to review the case.  In doing so, the Court went into an in-depth analysis of available case law and relied heavily on two decisions from the Supreme Court of the United States, along with other published decisions from other circuit courts.  The cases they analyzed found that the tender back rule did not apply to other federal statutes, such as the Federal Employee Liabilities Act (“FELA”) and the Age Discrimination Enforcement Act (“ADEA”).  The courts all generally reasoned that tender back undermined the purpose of the laws to help physically or emotionally injured employees, gave bad employers incentive not to comply with federal law, and allowed employers to rely on the inability of an employee to tender funds back to dismiss an otherwise legitimate claim.

Using those cases as a guide, the Court ultimately decided that tender back does not apply to claims brought under Title VII or the Equal Pay Act.  In finding this, the Court expressed concern that requiring tender back “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.”  The Court further stated that any payment to the employee should be deducted from any award determined to be due to the employee.

 

What Does This Mean?

 

This decision is important for you to know because the 6th Circuit is the Court that hears all the appeals from federal district courts in Ohio.  Therefore, this ruling is likely to directly impact you or someone else you know who is bringing a claim of discrimination under Title VII, such as race, gender, national origin, or pregnancy discrimination, as well as the Equal Pay Act.  This decision should allow you or someone you know to bring that claim.  Therefore, if you or someone you know is in this scenario or a similar one, contact me and schedule a free initial consultation so we can discuss your situation and potential options in more detail.

 

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James J. Hux is the Owner and Sole Attorney at Hux Law Firm, LLC. His practice areas include employment discrimination, personal injury, and general civil litigation throughout the State of Ohio.