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Common law ‘tender-back’ doctrine does not apply to claims brought under Title VII or Equal Pay Act

By Ronald Miller, J.D.

In a question of first impression, the Sixth Circuit has held that an employee is not required to “tender back” consideration received under a severance agreement before bringing claims for violations of Title VII or the Equal Pay Act. The appeals court expressed its concern that requiring recently discharged employees to return their severance before they can bring claims under Title VII and the EPA would serve only to protect malfeasant employers at the expense of employees’ statutory protections at the very time that those employees are most economically vulnerable. Judge Thapar filed a separate opinion concurring in part and dissenting in part (McClellan v. Midwest Machining, Inc., August 16, 2018, Clay, E.).

In August 2015, the employee announced to her employer that she was pregnant. According to the employee, her supervisor made negative comments for weeks in response to the announcement and was annoyed by her absences for pre-natal appointments. About three months later, the employee was terminated. She testified that on the day of her termination, the company president called her into his office and presented her with an agreement and said she “needed to sign then if she wanted any severance.” Although the two reviewed the agreement together, the president did not ensure her understanding, as they went along at a rapid pace.

Severance payments. “Feeling pressured,” the employee signed the agreement without benefit of a lawyer. The agreement provided that the employee would waive “any and all past, current and future claims” she had against the employer. Under the terms of the Severance Agreement, the employer agreed to pay the employee $4,000, payable in eight weekly installments. The employer made each payment and the employee accepted them.

Lawsuit. But the employee filed a charge of discrimination with the EEOC, alleging that the employer terminated her because of her pregnancy. After receiving her right-to-sue letter, the employee filed suit against the employer anyway, claiming, among other things, pregnancy discrimination and that the employer maintained a sex-segregated workforce since all inside sales people were women, while the three outside salesmen were men. The complaint also asserted that the employer “paid male outside sales persons substantially higher commissions and paid them substantially more overall than female inside sales persons, even though the positions required substantially similar duties, requirements, equal skill, effort, and responsibility, under the same or similar working conditions.”

Attempted rescission of severance agreement. After receiving the complaint, the employer’s counsel informed the employee’s counsel of the severance agreement. Her response was a letter stating that she was “rescinding the severance agreement because she wanted to litigate matters related to her employment and termination.” Enclosed with the letter was a check for $4,000. In response, the employer returned the check, asserting that there was no legal basis for rescinding the severance agreement. It then moved for summary judgment arguing that the severance agreement barred the employee’s claims, also contending that the employee’s claims were barred because she did not “tender back” the monetary consideration she received under the severance agreement before commencing her lawsuit.

Summary judgment. The district court initially denied summary judgment and permitted the parties to conduct discovery on the limited issue of whether the employee “knowingly and voluntarily executed the agreement.” It also ordered the parties to brief whether federal law required the employee to tender back any consideration received under the severance agreement before commencing her suit under Title VII and the Equal Pay Act. After the employer filed a renewed motion for summary judgment, the district court granted it based on “the common law doctrine of release and tender back.”

Tender-back doctrine. When evaluating a plaintiff’s challenge to the validity of a release, courts must “remain alert to ensure that employers do not defeat the policies of Title VII by taking advantage of their superior bargaining position or by overreaching,” observed the appeals court. Dismissing the employee’s Title VII and EPA claims on the ground that she did not “tender back” the $4,000 she received under the severance agreement prior to filing her lawsuit, the district court had held that “even if a party signed a release under duress, she must ‘as a condition precedent to suit . . . return the consideration in exchange for a release.’”

At the heart of this appeal was whether the tender-back doctrine applied to claims brought under Title VII or the EPA. In a question of first impression, the appeals court held that a plaintiff is not required to “tender back” consideration received under a severance agreement before bringing claims for violations of Title VII or the EPA.

Remedial statutes. The appeals court pointed out that Title VII and the EPA are “federal remedial statutes,” and that the purpose of Title VII is “elimination of discrimination in the workplace.” Similarly, “the Equal Pay Act is broadly remedial and should be construed and applied so as to fulfill the underlying purposes which Congress sought to achieve.”

Economic realities. Like the ADEA, Congress designed Title VII so that the enforcement of its substantive measures against employers would be effected, at least in substantial part, through private individuals asserting a claim. The Supreme Court has recognized that imposing a tender-back rule in the ADEA context would undermine this feature of the statute insofar as “in many instances a discharged employee likely will have spent the moneys received and will lack the means to tender their return,” thereby tempting employers to “risk noncompliance . . . knowing it will be difficult to repay the moneys and relying on ratification.” The same could be said for the Title VII and EPA contexts, which confront the same economic realities.

Accordingly, the Sixth Circuit concluded that the language and reasoning of the Supreme Court’s rulings in Oubre v. Entergy Operations, Inc., and Hogue v. Southern R.R. Co., apply equally to claims brought under Title VII and the EPA. The appeals court concluded that it was more consistent with the objectives of the Act to hold that “the sum paid shall be deducted from any award determined due to the injured employee.”

Tender back of consideration. Even assuming arguendo that the employee was required to tender back in order to file her claims under Title VII and the EPA, the appeals court concluded that the district court erred by granting summary judgment to the employer. The record was undisputed that upon plaintiff’s counsel learning that the parties had entered a severance agreement, the employee sent a check for the full amount she received. Instead of accepting the check, the employer asserted that there was no legal basis for rescinding the severance agreement. Accordingly, the judgment of the district court was reversed and remanded.

Partial concurrence and partial dissent. Although Judge Thapar agreed with the majority that the appeals court should remand the case, rather than moving forward with the merits of the employee’s Title VII and EPA claims, he would instruct the district court to reconsider the ratification and tender-back doctrines consistent with his opinion. According to the dissent, because Congress did not clearly override the common law ratification and tender-back doctrines when it passed Title VII or the EPA, he would apply both rules to the employee’s case and remand for further fact-finding.