Fourth Circuit holds that former employee can sue for discrimination based on severance offer

Title VII’s protections against gender discrimination can extend to former employees complaining about the severance package they were offered, according to a recent federal appeals court ruling.  In Gerner v. County of Chesterfield, Virginia, the Fourth Circuit Court of Appeals ruled that offering less favorable, non-contractual employment benefits can be an “adverse employment action” under Title VII and that a former employee can sue based on such a theory.

Karla Gerner was employed by Chesterfield County, Virginia for more than 25 years when her job was eliminated in a December 2009 re-organization.  The County offered her three months of severance pay, along with health benefits, in exchange for her signing a general release of all claims.  Gerner declined the offer.  The County terminated her employment and provided her with no severance benefits.  Gerner then filed a lawsuit claiming that the County discriminated against her based on her sex by offering her a less favorable severance package than that offered to similarly-situated male employees.

The District Court of the Eastern District of Virginia dismissed the lawsuit, reasoning that Gerner could not prove an adverse employment action under Title VII because: (1) she was not contractually entitled to the severance benefits in question; and (2) the severance offer was made after the termination of Gerner’s employment.  But, the Fourth Circuit disagreed.  The Fourth Circuit rejected the notion that severance benefits must be a “contractual entitlement” in order to provide the basis for an adverse employment action.  Relying on Supreme Court precedent established in Hishon v. King & Spalding, the Fourth Circuit held that the “discriminatory denial of a non-contractual employment benefit” may constitute an adverse employment action under Title VII.  In addition, since Title VII prohibits an employer from discriminating “against any individual,” Title VII’s protections extend to both current and former employees. 

So what are the takeaways here?

• The obvious takeaway is for employers to be consistent in their practices, even in the severance packages that they offer to terminated employees. 
• However, an unintended consequence, and resulting problem for employers, may arise.  Assume an employer develops a standard policy relating to severance – for example, one week of severance for every two years of service subject to certain maximum and minimum amounts.  Does this severance pay policy become a “termination program” as that phrase is used in the Older Workers Benefit Protection Act?
  • If so, then the severance agreement offered must include the required OWBPA language and provide the employee with a 45-day consideration period (rather than the typical 21-day period) and
  • The severance agreement must include an exhibit giving the job titles and ages  of the employees who are eligible for the termination program (the one(s) being terminated) and the job titles and ages of employees in the same “decisional unit” who are not eligible (the one(s) not being terminated).
  • Of course, employers are accustomed to offering releases with the 45-day consideration period and the applicable exhibit in the process of a layoff.  But, in the process of a performance termination, employers typically use the 21-day consideration period (and no exhibit).  Yet, if the severance offer is made as part of a “consistent practice” (to avoid the type of discrimination claim brought by Gerner), there is a possibility that even one-person severance offers may be considered part of a “termination program,” triggering the additional OWBPA requirements for the release to be effective.