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.

Gas prices dictate new types of employment policies

Yesterday's Cleveland Plain Dealer ran an article on new types of perks that companies are making available to their employee to offset the rising gas prices. The options discussed:

• Helping potential car poolers connect.
• Adjusting workweeks so some employees can put in four 10-hour days instead of five 8-hour days, or offering flex time options.
• Handing out maps of bike routes and riding tips.
• Accommodating, and even subsidizing, mass-transit use.
• Offering work-from-home options.
• Making available forgivable, low-interest loans to help employees buy dwellings near work.
• Providing gas gift cards as rewards.
• Raising mileage reimbursements.
• Catering in-house breakfasts and lunches

I have some concerns about some of these perks. For example, gas cards might be a great idea, but it may have a negative impact on those who do not own cars. Thus, consider combining a gas card program with a bus pass program to make sure that all employees are equally covered by the benefit. In other words, my standard disclaimer with any employment policy applies - make sure that it applies on a non-discriminatory basis.

What I'm reading this week #34

For the past 12 years, it has been the law in the 6th Circuit that an employer cannot discriminate against a female employee because she had an abortion (see Turic v. Hollan Hospitality). This week the 3rd Circuit joined suit, and held that the term "related medical condition" in the Pregnancy Discrimination Act includes an abortion. The case is Doe v. C.A.R.S. Protection, and you can read about it on the LawMemo Employment Law Blog and the Nolo Employment Law Blog.

WorkplaceHorizons posts this week on two separate recent legislative issues: the little known Child Labor Provisions of the Genetic Information Non-Discrimination Act, and a potential compromise between employers and disability rights advocates on the ADA Restoration Act. For my prior thoughts on the ADA Restoration Act, see ADA Restoration Act unnecessarily seeks to broaden the definition of "disability". While these changes would be a step in the right direction, it would be a big mistake to amend the ADA to affirmatively state that mitigating measures should not be considered when determining whether an impairment materially restricts an individual's major life activity.

The Pennsylvania Labor & Employment Blog has some information on a topic that often plagues HR professionals, whether an employer is required to continue an employee's accrual of vacation benefits while out on FMLA or military leave.

The Delaware Employment Law Blog reports on mixed results for employers from the Families & Work Institute's recent study of flexible work benefits among U.S. companies.

We'll finish this week's review with a trio of articles about e-discovery. HR Tech News reports that employment lawsuits cause the most e-discovery headaches, while Rush on Business tells us why document retention policies are so important for businesses to have in light of that news. Meanwhile, ediscoveryinfo gives us 5 key misconceptions that businesses have about electronically stored information and their e-discovery obligations.

Crusader seeks to ban cursing - should businesses comply?

Jim O'Connor runs the Cuss Control Academy. He believes that America has developed an addiction to swearing that needs to be curbed. According to Jim: "Swearing can be rude, crude and offensive. It can reflect a bad attitude that hurts your image and your relationships. People might perceive you as an abrasive person who lacks character, maturity, intelligence, manners and emotional control." He suggests that instead of cursing, people use substitute words such as "balderdash" instead of "bullshit."

So, do companies need anti-cursing policies? No. But, businesses should not totally ignore foul language either. Instead, it should be treated like any other workplace behavior - dealt with when it offends co-workers, alienates customers, or reaches a level so extreme or outrageous that it may create a hostile environment.

Courts sets boundary on associational discrimination claims

Recall in Thompson v. North Am. Stainless, the 6th Circuit recognized a claim for associational retaliation, and held that "Title VII prohibit[s] employers from taking retaliatory action against employees not directly involved in protected activity, but who are so closely related to or associated with those who are directly involved, that it is clear that the protected activity motivated the employer's action."

At the time, I questioned the practical application of the Thompson decision by asking, "How close is close enough?"

In Thompson, the relationship was a fiancee. It is safe to assume liability will also extend to action taken against spouses. What about boyfriends and girlfriends? How long do you have to date to be protected from retaliation? The same protection also will probably extend to parents and children. What about siblings? Grandparents? Cousins? 3rd cousins twice removed? In-laws? Friends? Carpoolers? The people you share your lunch table with? The person you sat next to in 3rd grade? How close is close enough for an employer to intend for its actions to punish the exercise of protected activity? Do employers now have to ask for family trees and class pictures as part of the orientation process?

Last month, the United States District Court for the District of Oregon, in EEOC v. Qwest Corporation, gave us some clarity on how close is close enough to support an associational discrimination claim. In that court's view, the law requires something more than just a friendship:

To maintain a claim of discrimination or harassment based on her association with a black person, plaintiff must show the existence of an association. The law requires something more than mere work-related friendship. There must be a significant connection between the plaintiff and the non-white person.

While I was writing tongue-in-cheek when I asked whether carpool buddies would be able to bring an associational retaliation claim under Thompson, it is refreshing to see a court take a practical look at this type of case and reject an associational claim made by a friend. As we try to figure out the limits of Thompson, these types of decisions are certainly worth following.

[Hat tip: Manpower Employment Blawg]

Just because paid family leave is a popular issue does not mean it is good for Ohio

Ohioans for Healthy Families, the union-backed group behind the Ohio Health Families Act, continues to try to gather enough signatures to have the OHFA placed on the November ballot. According to a May 28, 2008, press release by Ohioans for Healthy Families, the organization has:

already gathered over 50,000 new petition signatures and, with over 70% of Ohioans supporting paid sick day legislation, have no doubt whatsoever that we will be able to gather the number needed to put it on the November ballot. Personally, I think anyone running for legislative office this year while opposing paid sick days is playing political Russian roulette.

By law, if the Coalition gathers an additional 120,683 signatures by August 6, the Ohio Healthy Families Act will appear on the November ballot.
A poll on MSNBC.com of over 10,000 people reveals that only 28% oppose government mandated paid family leave. Further, as the MSNBC article points out, the United States severely lags behind most of the civilized world (and even some of the third world) on paid family leave benefits. The issue isn't whether paid family leave is a good idea or a bad idea. The issue is whether the Ohio Health Families Act, as written, is good for Ohio businesses, which it is not.
Separate and apart from the myriad ambiguities and other drafting problems in the legislation, which I've discussed before (see Deconstructing the Ohio Healthy Families Act), Ohio simply does not need to be on the forefront of this issue. Only three states (California, Washington, and New Jersey) currently require paid family leave. Nothing about becoming the 4h state to join this movement will make Ohio a more attractive business climate. We should be passing legislation to draw companies to Ohio, not drive them away.
There will come a time when paid leave will be a reality for all but the smallest of businesses in this country. If Obama wins in November, I expect that time to come in the next 4 years. Assuming that the OHFA makes the November ballot, Ohio voters will have to look past their own self interests and consider the greater good of the state. Is it more important to have a few days of paid medical leave per employee, or have more businesses choose to call Ohio home, which creates more jobs and less of a tax strain for everyone?

Accuracy of background checks poses potential problem for employers

Business Week magazine this week is running a story on the lack of accuracy in credit reports. The article claims that inaccuracies are a huge problem in the background checking industry, and gives a few heart-wrenching anecdotal examples to support the allegation. Dan Schwartz, at the Connecticut Employment Law Blog, has done the math, however, and estimates that only 0.000023 percent of all background checks end up in a complaint being filed with the Federal Trade Commission. Dan's conclusion: "Are there issues with faulty records on some? Absolutely. But the numbers presented in this article hardly suggests a rampant problem with background checks."

It's the faulty records, however, that present the biggest risks to employers. Third party background checks by employers on current or prospective employees are governed by the federal Fair Credit Reporting Act ("FCRA"). It has very stringent requirements employers must comply with before obtaining or using a background check from a third party:

1. The employer must first disclose to the employee or applicant that a background check will be done and receive written consent.
2. The employer must then certify to the consumer reporting agency that it made the disclosure and has obtained written consent. An agency that does not ask for this certification, or provides a background check in its absence, should be a huge red flag about its credibility and the credibility of the information provided.
3. Finally, if you are going to take an adverse action based on information disclosed in the background check (such as not hiring someone), you must first provide the applicant or employee with a copy of the report you received along with a copy of the person's rights under the FCRA (available directly from the FTC). An employer must then wait a reasonable period of time (5 business days) before actually taking the adverse action, at which time the applicant or employee must be provided with an adverse action letter under the FCRA.

Any one of these steps can cause potential liability issues for an employer, but the only risk of any real damages stems from using an inaccurate report. Let's say, for example, a company violates the statute, but in the process learns of an applicant's bona fide criminal history. That history automatically disqualifies the person from consideration. Even though the statute has been technically violated, how has the person been harmed by not being hired for a job he or she was not qualified for in the first place? If, however, the criminal history was faulty (for example, the person was the victim of identity theft), and he or she is disqualified without having the opportunity to dispute the inaccuracy, that violation of the FCRA could open a company up to the fully panoply of employment-related damages.

Just because FCRA is seldom enforced does not mean that it should be ignored. Compliance is relatively simple, and failing to comply is an unnecessary risk for businesses to take.