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Severance Benefits Can Form The Basis Of A Title VII Discrimination Claim

Originally published in Employment & The Law - Summer 2012

Evan H. Pontz

A recent federal appellate court decision should cause employers to take a second look at the severance packages they offer terminated employees. 


In Karla Gerner vs. County of Chesterfield, Va., the Fourth Circuit Court of Appeals (which covers Virginia, West Virginia, Maryland, North Carolina and South Carolina) held that a claim of discrimination in severance pay can be a valid discrimination claim under Title VII.  In Gerner, the plaintiff was told that her position was being eliminated, and she was asked to sign a severance agreement that offered her three months of pay and health benefits.  She rejected the offer and was terminated without severance pay or benefits.  She then sued under Title VII for disparate treatment on the basis of sex, alleging that her similarly situated male colleagues were offered better severance packages than the one she rejected. 


The case was initially dismissed by the district court, but the Fourth Circuit reversed the lower court’s decision and ruled that the plaintiff’s Title VII claim was valid because Title VII applies to “potential, current and past employees.”  The Fourth Circuit also ruled that the plaintiff was not required to have a “contractual entitlement” to a benefit for its denial to be an adverse employment action under Title VII.  In other words, it did not matter that the employer was under no obligation to offer her severance.  The allegation that she was offered a lesser severance package than comparable male employees, by itself, was sufficient to support a claim for gender discrimination.  So, the case was remanded to the lower court for discovery and possible trial on the merits of her Title VII claim.


It was clear from the Fourth Circuit’s ruling that the lower court simply misapplied the law when it dismissed the case.  Thus, the Fourth Circuit’s ruling did not truly change what it already saw as the law.  Moreover, because the case was decided on a motion to dismiss (and no discovery or trial had taken place), the Fourth Circuit did not have the opportunity to address whether the evidence supported the plaintiff’s claim of gender discrimination.  


Nonetheless, Gerner raises key points about an employer’s obligations when it comes to severance benefits.  It is important that severance benefits offered to similarly situated employees be comparable because significantly different benefits packages offered to otherwise similar employees can be potential evidence of discrimination.  When offering severance benefits, it is good practice for employers to consider the packages offered to other employees during the same set of layoffs or reductions in force, or in the same department, or with the same or similar job titles or responsibilities.  Even if the severance package is being offered in a single, isolated layoff, consider what the company has done in the past in like situations.  Employers may also want to consider establishing a severance policy (or simply some internal guidance) setting forth factors that are (or are not) to be considered in deciding when to offer severance and how those factors should influence the severance package itself.  These efforts will help ensure consistency when different people are involved in severance decisions, as well as provide consistency and fair application over time.


It is also important that employers not rely purely on the confidentiality provisions contained in severance agreements and associated release documents to keep the terms of severance offers quiet.  For instance, in Gerner, the plaintiff reviewed the severance agreement and then refused to accept it, so she was not bound by the confidentiality provision and she was free to discuss the proposed terms of her severance agreement with others.  Even if she had accepted the offer subject to a confidentiality provision, realistic employers recognize that information on severance pay has a tendency to “get out.”


Although severance agreements, like other terms and conditions of employment, should be administered consistently, there may be instances where an employer decides to offer different packages to each employee.  In those cases, the employer should be careful to document the circumstances of the termination, layoff, or position elimination and the reasons for each severance package so it can distinguish one employee’s severance from another.  This practice will help employers establish a non-discriminatory basis for the terms of each particular severance agreement.  As in the case above, having a non-discriminatory reason for differing severance offers, and thorough documentation of that reason, may be necessary to defend against a discrimination claim.



Originally published in Employment & The Law – 09/05/2012


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