This newsletter addresses employment law developments in two areas: (1) employer liability for providing a "negative reference" to a former employee's prospective employer, and (2) the potential for continuing liability by an employer under the federal Age Discrimination in Employment Act, despite obtaining a written release from an employee, and despite the acceptance and retention of severance benefits by the employee. Recent decisions underscore the need for close examination by an employer of the manner in which its employment policies are written and enforced. The practical result is that an employer cannot necessarily close its files on an employee even after the employment relationship has ended. Nonetheless, an employer can minimize future problems by carefully establishing and enforcing employment policies which take these issues into account.
Post-Employment References
Employers who must both hire and fire employees in the course of business are often confronted with a cruel irony. On the one hand, an employer who seeks to hire an individual wants to obtain as much information as possible about that individual's background, including all issues relevant to the individual's perfor-mance for prior employers. On the other hand, that same employer who must terminate an individual wants to be selective in the information it discloses about the individual to other employers in order to avoid potential liability. In this regard, the United States Supreme Court's recent decision in Robinson v. Shell Oil Co.,__ U.S.__, 117 S. Ct. 843 (1997), confirmed that a former employee may state a claim under Title VII for damages caused by a former employer's negative reference.
1. Common Law Actions For Defamation
A terminated employee who believes that his inability to obtain subsequent employment was the direct result of a negative reference given by his former employer may bring a defamation action against his former employer. For example, in Davis v. Ross, 754 F.2d 80 (2d Cir. 1985), plaintiff resigned from her employment with defendant for reasons which were not explained by either party on the record. However, one year after plaintiff's resignation, defendant circulated a letter which contained the following statements:
To Whom it May Concern: The following [seven] people are no longer in my employment: . . . [Plaintiff]. If I let an employee go, it's because either their work or their personal habits are not acceptable to me. I do not recommend these people. In fact, if you hear from these people, and they use my name as a reference, I wish to be contacted.
754 F.2d at 82. The Second Circuit Court of Appeals, interpreting New York law, held that a jury could decide that the statements contained in this letter were libelous and disparaged plaintiff in her profes-sional capacity. Id. at 86.
Similarly, in Carney v. Memorial Hosp. & Nursing Home, 64 N.Y.2d 770, 485 N.Y.S.2d 984 (1985), defendant terminated plaintiff's employment after receiving unfavorable reports which revealed deficiencies in the operation of plaintiff's department. After plaintiff's termination, one of defendant's administrators told a local newspaper reporter that plaintiff was terminated "for cause." Plaintiff sued his former employer for defamation, alleging that this statement disparaged him in his profession. The New York Court of Appeals refused to dismiss plaintiff's claim, stating that plaintiff's allegation that defendant's statement to the reporter "is untrue and was intended to injure him in his profession by indicating that he is incompetent to perform his professional duties" stated a valid claim for libel under New York law.
While Davis and Carney are examples of cases in which plaintiffs may successfully sue their former employers who said too much, other cases demonstrate that plaintiffs may successfully sue former employers who did not say enough. See, e.g., Jerner v. Allstate Ins. Co., 1995 D.L.R. 193 d17 (October 5, 1995) (estates of five employees shot and killed by a co-worker sued the co-worker's former employer whose recommendation letter failed to note that the co-worker had been fired for bringing a gun to work); Randi W. v. Muroc Joint Unified Sch. Dist., 929 P.2d 582, 591 (Cal. 1997) (positive recommendation letters failed to note employee's history of disciplinary action for alleged sexual harassment and molestation).
However, plaintiffs who allege defamation are still faced with the ultimate task of proving the essential elements of their claim, i.e., that the statement was untrue and intentionally or recklessly made, and that plaintiff was damaged in some way in his profession because of the statement. Additionally, New York has a common law qualified privilege which, to some extent, protects employers who make allegedly defamatory statements while evaluating employees. See, e.g., Shamley v. ITT Corp., 869 F.2d 167, 173 (2d Cir. 1989).
2. Actions Under Title VII Of The Civil Rights Act
Employees also have a much more potent weapon than defamation claims against their former employers; employees can sue their former employers based on a claim of retaliation for providing a negative reference. In Robinson v. Shell Oil Co.,__ U.S. __ , 117 S. Ct. 843 (1997), the United States Supreme Court resolved a growing conflict among the circuit courts of appeals, confirming that a former employee may state a claim under Title VII of the Civil Rights Act if his former employer provides a negative reference to a prospective employer. In Robinson, plaintiff filed a religious discrimination charge with the Equal Employment Opportunity Commission ("EEOC") after his employment with defendant was terminated. While the EEOC charge was pending, plaintiff applied for alternative employment with another company which contacted plaintiff's former employer to obtain a reference. After plaintiff's application was rejected, he commenced an action against his former employer under Title VII, alleging that a negative reference was given by his former employer in retaliation for plaintiff's prior EEOC charge
The Supreme Court rejected the conclusion reached by various circuit courts of appeals that the definition of "employees" who are protected under Title VII only included employees in an existing employment relationship, and did not include former employees. The Supreme Court ruled that a former employee is an "employee" under Title VII, and therefore may state a retaliation claim against a former employer. To conclude otherwise, the Court stated, would "effectively vitiate much of the protection afforded" by the anti-retaliation provisions contained in Title VII. This decision was particularly beneficial to the plaintiff in Robinson, who had failed to establish his original claim of religious discrimination under Title VII, but was now able to pursue a retaliation claim against his former employer under the same statute.
While the Second Circuit Court of Appeals in New York has not addressed this issue since Robinson, the Second Circuit previously recognized a broad definition of "employees" under Title VII, noting that Title VII "prohibits discrimination related to or arising out of an employment relationship, whether or not the person discriminated against is an employee at the time of the discriminatory conduct." Pantchenko v. C.B. Dolge Co., 581 F.2d 1052, 1055 (2d Cir. 1978). Interestingly, the Second Circuit ruled recently that barring a terminated employee from using office space after the employee had sought advice from an attorney on a possible age discrimination claim did not constitute unlawful retaliation under the circumstances of that case. Wanamaker v. Columbian Rope Co., 108 F.3d 462 (2d Cir. 1997).
The ability of a former employee to state a retaliation claim under Title VII opens an employer up to potential new damages which did not exist in common law defamation actions, e.g., back pay, front pay, attorneys' fees and punitive damages. However, this new judicial avenue is not without its hurdles, since the former employee must still prove that the allegedly negative reference was given in retaliation for action taken by the employee.
3. Employment Policies
While an employer can never avoid the mere filing of a lawsuit by a former employee, an employer can minimize potential liability by establishing a reference policy based upon, at a minimum, three main principles: First, the policy should be clearly defined and should be consistently enforced. For example, an employer should not provide "bad" information only for "bad" employees, and vice versa. An employer should also be reluctant to provide extensive information for "good" employees, but only limited information for "bad" employees, in order to avoid an inference that limited information truly means bad information.
Second, the policy should require that references be given by a central department, or a particular individual within that department, to avoid "break-downs" in the policy which may occur in situations where a designated official provides the "corporate" statement, but a supervisor who worked more closely with the former employee provides a different, perhaps more detailed, statement. To that end, any reference policy should be circulated and published throughout the company.
Third, the policy should include a requirement that the employer and employee discuss the precise wording of a potential reference at the time of termination. Concurrently, the employer should seek to obtain a "reference release", in addition to other general releases obtained at the time of termination, which expressly releases the employer from liability based upon information given to a third party.
Employers who wish to take the most conservative approach may decline to provide any reference to prospective employers, or limit any reference to the former employee's position and dates of employment. Obviously, even this policy should be enforced consistently.
Releases Under The Age Discrimination In Employment Act ("ADEA")
An employer will often provide severance benefits to a terminated employee for purposes of demonstrating corporate good will, and hopefully avoiding a potential future lawsuit. In exchange, an employer will ordinarily obtain a signed release from the employee pursuant to which the employee waives all claims against the employer. However, an amendment to the ADEA, as well as several recent judicial decisions, make it easier for an employee to attack the validity of a release without having to return the severance benefits the employee previously accepted and retained.
1. The Older Workers Benefit Protection Act ("OWBPA")
The OWBPA was added to the ADEA in 1990 to provide minimum procedural and substantive requirements for releases of claims under the ADEA. As a preface, the OWBPA states that "[a]n individual may not waive any right or claim under [the ADEA] unless the waiver is knowing and voluntary." Indeed, the congressional intent in enacting the OWBPA "was two-fold: to `make clear that discrimination on the basis of age in virtually all forms of employee benefits is unlawful,' and to `ensure that older workers are not coerced or manipulated into waiving their rights to seek legal relief under the ADEA.'" Long v. Sears Roebuck & Co., 105 F.3d 1529, 1534 (3d Cir. 1997), citing, S. Rep. No. 263, 101st Cong., 2d Sess. 2 (1990).
The OWBPA mandates various specific minimum requirements that must be met for a valid waiver of an ADEA claim. Substantively, the OWBPA provides that a release must: expressly refer to rights or claims under the ADEA, state that the employee does not waive rights arising after the date of the waiver, state that the employee waives rights only in exchange for consideration in addition to that which the employee is already entitled, and state that the employee should consult with an attorney.1 Procedurally, the OWBPA requires that the employee must be given 21 days to consider the release (45 days if the release is given in connection with an employment termination program offered to a group or class of employees), that the employee must be given the opportunity to revoke the release within 7 days after its execution, and that the release is effective only after the 7-day period has expired. In addition, the OWBPA expressly supersedes prior common law by shifting the burden to employers to prove that the employee executed the release knowingly and voluntarily.
2. Recent Judicial Decisions
The OWBPA, and recent decisions interpreting this amend-ment (including the Supreme Court's January 1998 decision in Oubre v. Entergy Operations, Inc.), have extended the protection afforded to former employees who seek to assert age discrimination claims against their former employers by (a) placing a heavy burden on the employer to prove that a release was "knowing and voluntary", and (b) in some cases, refusing to require a terminated employee to "tender back" severance benefits received as consideration for the release as a precondition to attacking the validity of the release in court. For example, in Pierce v. Atchison Topeka and Santa Fe Railway Co., 110 F.3d 431 (7th Cir. 1997), plaintiff filed an age discrimination charge with the EEOC after he was demoted from his original position. Plaintiff subsequently learned about a new severance package being offered to terminated employees and approached one of his supervisors to inquire about his rights. Plaintiff's supervisor offered plaintiff the severance package in exchange for signing a general release of all claims against defendant, including claims under the ADEA. Plaintiff's supervisor advised plaintiff at that time that the release must be signed by the following day and that the release probably would not preclude a suit in federal court based upon the discrimination charge previously filed with the EEOC. In reliance on these representa-tions, plaintiff executed the general release. Plaintiff subsequently received a right-to-sue letter from the EEOC and commenced an age discrimination action in federal court. Defendant moved for summary judgment relying on the general release executed by plaintiff.
The court held that the release did not preclude plaintiff's claims because the release was not executed knowingly and voluntarily. Although the release was executed prior to the effective date of the OWBPA, the court noted that this outcome would be the same in post-OWBPA cases. Specifically, the court relied upon the evidence that (1) plaintiff was only given one business day to weigh his options, (2) defendant's corporate representative had stated that the release would not preclude a subsequent action in federal court, and (3) the severance package given to plaintiff was similar to the buy-out package to which other terminated employees were entitled as a matter of policy, and thus it was not clear that the package was specifically given in consideration for a waiver of plaintiff's statutory rights. The court made clear that a release will be effective only if the employee is clearly aware at the time the release is executed that he is bargaining away his particular statutory rights under the ADEA.
In Long v. Sears Roebuck & Co., 105 F.3d 1529 (3d Cir. 1997), plaintiff was one of several employees who was offered a reorganization package, including severance benefits, in exchange for signing a general release and waiver. The release provided to plaintiff merely referred to the ADEA by name, although a separate notice accompanying the release set forth the minimum substantive requirements contained in the OWBPA. One year after plaintiff signed the release, and despite receiving more than $39,000 in severance benefit payments, plaintiff commenced an age discrimination action against defendant.
The court held that defendant was not entitled to summary judgment dismissing plaintiff's claims on the ground that the release signed by plaintiff was defective, because the release itself, as opposed to the accompanying notice, did not contain the OWBPA language, and thus defendant did not strictly comply with the terms of the statute. Additionally, the court held that a defective release is void and cannot be ratified by an employee who accepts and retains severance benefits, and that an employee does not have to tender back the severance benefits received as consideration for executing the release. Although the court recognized that prior decisions of two other circuit courts of appeals reached a contrary conclusion, the court noted that Congress clearly intended to occupy the area of ADEA releases when it enacted the OWBPA and never took a position concerning either ratification or the tendering-back of severance benefits. Therefore, any changes which qualify the requirements contained in the OWBPA must await congressional action.
Similarly, in Raczak v. Ameritech Corp., 103 F.3d 1257 (6th Cir. 1997), the court held that an employee was not required to tender back severance benefits prior to challenging the validity of a release, because such a requirement would deter meritorious ADEA claims by forcing a terminated employee to choose between accepting monetary benefits and other security from the employer, and foregoing those benefits to pursue a claim which may not be resolved in plaintiff's favor for many years down the road -- if ever. The court balanced the apparent harshness of this holding by noting that an employer could still plead the amount of severance benefits received by the employee as an offset to any sums recovered in the litigation.
While the Second Circuit Court of Appeals in New York has not yet addressed these issues, a United States District Judge in the Southern District of New York has held that a defective release is only voidable, not void, and can be ratified by an employee who accepts the benefits offered as consideration for executing the release. See Hodge v. New York College of Podiatric Medicine, 940 F. Supp. 579 (S.D.N.Y. 1996). Subsequently, another Southern District Judge held in Reid v. IBM Corp., 1997 WL 357969 (S.D.N.Y.) that where the release met the OWBPA minimum procedural require-ments, a former employee who challenges the release as not being knowing and voluntary may be precluded from suing a former employer because he has ratified the release by retaining severance benefits and failing to tender back the benefits before suing. There does not appear to be a published decision in New York addressing the issue of whether an employee is first required to tender back the severance benefits previously accepted and retained.
However, the United States Supreme Court held in January that a former employee may not waive his or her right to sue under the ADEA by failing to tender back severance benefits, when a release signed by the employee does not comply with the express requirements contained in the OWBPA. Oubre v. Entergy Operations, Inc., 1998 WL 23157 (1998). In Oubre, the Supreme Court reversed the lower courts' grant of the employer's motion for summary judgment, holding that the release signed by the employee upon her termination was defective because (1) the employee was not given enough time to consider her options, (2) the employee was not given 7 days to revoke the release, and (3) the release did not specifically refer to claims under the ADEA. In a brief opinion, and without relying on any of the decisions discussed above, the Court ruled that a defective release cannot bar an ADEA claim, despite the retention by the employee and failure to tender back severance benefits received as consideration for signing the release. The Court concluded by noting that the OWBPA "governs the effect of the release on ADEA claims, and the employer cannot invoke the employee's failure to tender back as a way of excusing its own failure to comply."
3. Employment Policies
As stated above, there is little an employer can do to preclude the mere filing of a lawsuit by a former employee. Nevertheless, an employer can establish and enforce its employment policies in a manner which minimizes the likelihood of an ultimate determination that an ADEA release is defective and insufficient to preclude a lawsuit. First, an employer should make sure that the consideration given to an employee in exchange for signing an ADEA release constitutes "new" consider-ation to which the employee was not already entitled under company policy (e.g., where the employee is already entitled to a specified amount of money based upon the employee's length of service to the company). Second, an employer should ensure that the substantive and procedural requirements of the OWBPA are fully satisfied and explained to the employee at the time the release is presented. Third, an employer should consider including a liquidated damages provision in the severance agreement which obligates the employee to return a specified sum of money in the event the employee commences a lawsuit against the employer.
We hope you find this newsletter useful and informative. Please feel free to contact Leslie Bennett or Michael Schmidt at (516) 694-8000 if you would like to discuss any of the cases and issues in more detail. Please note that this newsletter is not intended to provide legal advice for any particular matter.
1If the release is obtained as part of an employment termination program offered to a group or class of employees (e.g. a reduction in force), the OWBPA further requires that the employee be given comparative data about employees who are not included in the selected group or class in order to allow plaintiff to make an informed determination as to whether age discrimination played any role in the employer's decision.