Tuesday, June 10, 2008

Offering of severance package found to be evidence of a constructive discharge

With the exception of a "for cause" termination, I am firm believer that most terminations should be communicated with an offer of some amount of severance pay. It not only cushions the blow for the employee who may be losing his or her job through no fault of his or her own, but also presents an opportunity for the employer to get something positive out of bad situation. For one thing, an offer of severance should always be tied to a release by the employee of any and all possible claims against the employer. Thus, the employer is buying certainty that the employee will not sue. The severance agreement also gives employers the chance to gain benefits such as a cooperation clause and promises as to non-disparagement and confidential information.

Courts should be protecting severance agreements as good policy in promoting harmonious employer/employee relationships. Yet, in Coryell v. Bank One Trust, the Franklin County Court of Appeals held that an employee who accepts a severance package in lieu of termination can claim a constructive discharge sufficient to satisfy the 2nd element of the prima facie case of age discrimination (the suffering of an adverse action).

As part of a reorganization of Bank One, James Coryell (age 49) accepted a severance package that provided him with 52 weeks salary and benefits continuation. The severance documents expressly stated that Coryell could continue to seek a new position with the company. Coryell testified that he believed he had no better option than accepting the severance package. Although Coryell did continue to look for an internal position, he ultimately obtained an job with a different company during the pay continuation period. Coryell alleged that after his separation he was replaced by a 42-year-old, which constituted age discrimination.

Coryell pursued his age discrimination claim under the indirect method of proof, which requires a prima facie showing that:

  1. the plaintiff is a member of the statutorily protected class;
  2. the plaintiff suffered an adverse employment action;
  3. the plaintiff was qualified for the position; and
  4. the plaintiff was replaced by a substantially younger person or that a comparable, substantially younger person was treated more favorably.

The trial court found, as a matter of law, that Coryell was "neither directly nor constructively discharged because he chose between meaningful options when he accepted the severance package." Because he was not discharged, it concluded that he could not establish the second element of his prima facie case, that he suffered an adverse employment action.

Coryell is not the first time an Ohio court has faced the issue of whether an employee who accepts a severance package can claim discharge. In Barker v. Scovill, the Ohio Supreme Court found that an employee who was offered termination with severance pay "made a conscious ,well-informed, uncoerced decision [and] should not now be allowed to cry foul." In Caster v. Cincinnati Milacron, the Hamilton County Court of Appeals found that an employee who was offered either the opportunity to obtain other employment with the company, 12 weeks layoff with the potential for recall, or permanent severance with a $100,000 payout, and who chose the latter, could not claim termination.

The Coryell court, however, distinguished those precedents and found that Banc One constructively discharged him by offering the severance package.

When a plaintiff chooses termination in lieu of other options, courts will not construe his decision as an actual discharge. Rather, the plaintiff must show that he was constructively discharged, i.e., that his or her choice of termination was involuntary or coerced. Courts generally apply an objective test to determine whether a plaintiff was constructively discharged, asking "whether the employer's actions made working conditions so intolerable that a reasonable person under the circumstances would have felt compelled to resign." ...

Here, in support of his contention that he was constructively discharged, Coryell argues that appellees stripped him of his title, position, responsibilities, functions, supervisory role, and involvement in day-to-day operations and management, leaving him with no real position. ... We agree with Coryell that this evidence creates a question of fact as to whether Coryell had any meaningful choice but to accept the severance package.

This case is a cautionary tale for all employers. If you are going to offer a severance package, make sure to get something of value in return. The best return on the investment is a clear, comprehensive, and enforceable release of all potential claims by the employee against the company. Once the employee releases the age discrimination claim, it becomes irrelevant if the employee had meaningful choice but to accept the severance package, or was constructively discharged.

Waivers of age discrimination claims present their own unique problems - namely a federal statute known as the Older Workers Benefit Protection Act. The OWBPA has specific requirements a release of federal age discrimination claims must meet to be valid and enforceable. Tomorrow, we'll take a look at the OWBPA and try to give a short refresher course on its key provisions.