The time an employee rejected a $100 discrimination settlement and turned it into $495,000!

You practice long enough as an employment lawyer, and you accrue stories upon stories to share with others. But, this one I’m about to tell you tops most.

This story should have been unremarkable. It involves an employee with workers’ compensation and discrimination claims against his former employer. The employer agreed to pay $20,000 to settle all of the employees’ claims, and the employee agreed. However, because the two sides were concerned that the labor commission would reject a workers’ compensation settlement with a full release, they decided to restructure the settlement. The employer agreed to pay $20,000 to settle the workers’ compensation claims and $100 to drop all other potential claims.

The employer paid the $20,000. However, due to a clerical error, it failed to pay the $100. So the plaintiff revoked the settlement and sued for his discrimination claims. At summary judgment, the district court concluded that the two agreements were divisible and that failure to pay the $100 allowed the plaintiff to rescind the second agreement. The parties then stipulated for the plaintiff to take a $495,000 final judgment.

An appeal followed.

Before the Tenth Circuit Court of Appeals, the employer contended that it did not materially breach the settlement agreement. After all, it paid $20,000 out of $20,100 in two integrated agreements.

The appellate court disagreed, concluding that the two promises were divisible:

Here, the plain language of the Compromise and Settlement Agreement establishes that the parties intended to enter independent agreements about different subjects though made at the same time. In the Compromise, [the employer and its inusrance carrier] agreed to settle Plaintiff’s “alleged industrial claims”—meaning his workers’ compensation claim—for a “lump sum consideration totaling $20,000.” In the Settlement Agreement, [the employer] agreed to pay Plaintiff $100, “which amount shall constitute full and complete payment,” to settle “any and all” other claims he might bring against the company. Even if we treat the Compromise and the Settlement Agreement as if they were a single document, its plain language would still apportion the parties’ consideration into two distinct sets of reciprocal promises. (cleaned up).

It also concluded that the employer materially breached its contractual duty to pay $100, which under local state law, allowed the plaintiff to rescind it:

The only promise [the employer] made in exchange for Plaintiff releasing his other employment claims was to pay Plaintiff $100. And at the time Plaintiff rescinded the contract—five months after the parties signed the Settlement agreement—[the employer] still had not performed. That failure of performance was material breach of a divisible part of the parties’ agreement, allowing Plaintiff to validly rescind that portion of their contract.

While it’s unclear why the employer later stipulated to a final judgment of $495,000, the employer must now pay it because it did not live up to its earlier bargain to pay $100 in exchange for a release of all non-workers’ compensation claims.

Not exactly a solid return on investment.