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Offer Of Less Generous Severance Package Can Be Basis For Claim For Discrimination

Published by on April 16, 2012

The U.S. Court of Appeals for the Fourth Circuit reversed the dismissal of an employee’s claim of gender discrimination based on a unfavorable severance package offer.  Prudent employers would be well-advised to offer severance benefits in a  non-discriminatory manner to similarly situated employees to avoid this type of claim.  More after the break. On December 15, […]

The U.S. Court of Appeals for the Fourth Circuit reversed the dismissal of an employee’s claim of gender discrimination based on a unfavorable severance package offer.  Prudent employers would be well-advised to offer severance benefits in a  non-discriminatory manner to similarly situated employees to avoid this type of claim.  More after the break.

On December 15, 2009, Plaintiff Carla Gerner’s position was eliminated due a re-organization after she worked with the County for twenty-five years, including twelve as a department director.  Gerner was the County’s Director of Human Resources Management.  Gerner was offered a severance package of three months’ pay and health benefits.  She ultimately declined the offer.  Gerner’s employment was terminated effective December 15, 2009. 

Gerner filed an action alleging disparate treatment on the basis of sex in violation of Title VII.  Gerner alleged that the County did not offer her the same “sweetheart” severance package offered to similarly-situated male counterparts.  She claimed that prior male directors were either transferred or kept on payroll, with benefits, to enhance their retirement benefits.  She cited to four male comparators in support of her claim.

The Complaint was dismissed by the district court on the County’s motion.  The district court dismissed Gerner’s complaint because on the basis that Gerner failed to allege a “factual basis” for the third element of a prima facie case — that is, she failed to allege an “adverse employment action.”  The court found that “the County’s offer of a less favorable severance package” did not constitute an adverse employment action for two reasons.  First, the court held that severance benefits must be a “contractual entitlement” to provide the basis of an adverse employment action under Title VII.  Second, the court held that because “the offer of the severance package was made after [Gerner] had been terminated,” it could not constitute an adverse action.

The Fourth Circuit reversed the judgment, concluding that both reasons for dismissal were flawed.  First, with respect to the district court’s finding that an employment benefit must be a contractual right in order for its denial to provide the basis for a Title VII claim, the Court found this to be in contradiction of applicable precedent.  In situations like that at hand, where an employee did not volunteer for a change in employment benefits or retain a job in lieu of a new benefit, courts have consistently recognized that the discriminatory denial of a non-contractual employment benefit constitutes an adverse employment action. 

Second, the Fourth Circuit stated that Title VII protects both current and former employees from discriminatory employment practice for an employer “to discriminate against any individual” on the basis of membership in a protected class.  42 U.S.C. § 2000e-2(a)(1) (emphasis added).  Courts have consistently interpreted this intentionally broad language to apply to potential, current, and past employees.  To limit actionable adverse employment actions to those taken while an individual is currently employed would be inconsistent with the statutory text and Title VII’s “principal goal” of eliminating discrimination in employment.

The court also noted that the district court must accept all well-pleaded factual allegations as true, and therefore, Gerner’s allegations (although it may not be ultimately proven) that she was not terminated until after she rejected the offer must accepted as true.

The decision by the appeals court sends the case back to Hudson for pretrial proceedings. A copy of the decision can be found here.

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