Uneven severance packages may create discrimination claims

A severance agreement helps to allow businesses to ensure that former employees don’t sue. The concept is fairly simple: in exchange for $X, the former employee agrees to release the company from every claim under the sun from the beginning of time through the date the former employee signs the agreement (or seven days after the agreement is signed in cases where the employee releases claims under the Age Discrimination in Employment Act).

Where am I going with this? Let’s take a hypothetical. Assume that ABC Company decides to lay off two employees: Bob and Mary. Both worked the same position, have the same seniority, and reported to the same supervisor. However, ABC offers Bob six weeks of severance and Mary only three weeks of severance. Does Mary have a potential gender discrimination claim against ABC?

The answer follows after the jump…

* * *

According to a recent decision from the Fourth Circuit Court of Appeals, Mary may have a claim.

A female HR Director claims she received a lesser severance package than her male counterparts.

The case is Gerner v. County Of Chesterfield. There, Ms. Gerner, the County’s HR Director — I mean, former HR Director — alleged that the County of Chesterfield offered “sweetheart” severance deals to many of her male co-workers. Ms Gerner too received a severance offer as part of a County downsizing. Except, according to Ms. Gerner, her offer was not so sweet. Certainly not as sweet as Hoosier football fans breaking into a rendition of Sweet Caroline at a game against Iowa.

Sweeeet!

Snap out of it. Where was I? Oh yeah, so Ms. Gerner sued her former employer for gender discrimination, claiming that the company treated male former employees better than it did her (i.e., disparate treatment).

Former employees may have tenable discrimination claims.

Now, to prove gender discrimination based on a theory of disparate treatment, a female plaintiff must demonstrate, among other things, that she suffered an adverse employment action and that similarly-situated male employees received more favorable treatment.

The County moved to dismiss Ms. Gerner’s complaint, claiming that the terms and conditions of a severance package do not constitute an actionable “adverse employment action”. The lower court reasoned that severance benefits are not a “contractual entitlement” and, therefore, cannot be used to demonstrate an adverse employment action.

The Fourth Circuit concluded otherwise. It recognized that the Supreme Court has held that even benefits that an employer is not obligated to provide may qualify as a privilege of employment. Therefore, those benefits may provide a basis for a gender discrimination claim, where a company favors men who are receive the benefit. Consequently, absent a “wholly voluntary” reduction-in-force plan, the discriminatory denial of a non-contractual employment benefit constitutes an adverse employment action.

Ok, but doesn’t it matter that Ms. Gerner is a former employee? That is, former employees can’t prove disparate treatment based on the denial of an employment benefit because former employees aren’t entitled to any employment benefits, right? Wrong. The Supreme Court rejected the idea that denial of an employment benefit could not constitute an adverse employment action because it only affected a former employee. That would be inconsistent with the goal of anti-discrimination statutes like Title VII, which is to eliminate discrimination in employment, whether against current or former employees.

For these reasons, the Fourth Circuit found that MS. Gerner had pled an adverse employment action, as well as the other elements of a disparate impact claim, and denied the County’s motion to dismiss.

Same severance for everyone?

Of course not. There may be many factors not related to one’s gender that help dictate the amount of severance to offer. Title, experience, and litigation risk are just a few. However, where you have two or more similarly-situated employees who are laid off at the same time, assume that they may talk to each of about the severance agreements that they receive. In that situation, be careful about offering different agreements.