In Shultz v. Congregation Shearith Israel of the City of New York, -- F.3d --, No. 16-3140-cv, 2017 WL 3427130 (2d Cir. Aug. 10, 2017), the United States Court of Appeals for the Second Circuit held that a cause of action may be based on a notice of termination effective in three weeks even though the termination was revoked prior to its effective date.
In Shultz, Alana Shultz worked as a Program Director for a synagogue in New York City. Shultz got married on June 28, 2015 and, prior to leaving for her honeymoon, she advised the synagogue’s Executive Director that she was pregnant. When Shultz returned from her honeymoon on July 20, 2015, she was visibly pregnant and had a meeting with the Executive Director about the pregnancy. Later that day, Shultz met with the Executive Director, one of the congregation’s rabbis, and a member of the Board of Trustees, where she was informed that her employment was being terminated effective August 14, 2015 because one of the rabbis was leaving the congregation and her position was being eliminated as part of a restructuring. On July 30, Shultz’s lawyer had advised the congregation that Shultz had retained counsel to pursue claims arising out of her termination from employment. On August 5, 2015, the congregation presented Shultz with a letter advising her that she had been “reinstated” as the Program Director and, thus, her employment would not terminate effective August 14, 2015. Shultz alleges, however, that after receiving this letter, she was subjected to a pattern and practice of repeat discrimination, leading Shultz not to return to work after August 14, 2015.
Shultz filed suit in federal district court, alleging sex discrimination and retaliation under Title VII of the Civil Rights Act of 1964, as amended (“Title VII”), violations of similar provisions under New York City and New York State law, interference with exercising her rights under the Family and Medical Leave Act (“FMLA”), and defamation. The synagogue filed a motion to dismiss for failure to state a claim upon which relief could be granted, which the court granted. Shultz then appealed to the Second Circuit.
The Second Circuit focused on the issue of whether the synagogue’s rescission of Shultz’s termination of employment meant that there was no adverse employment action and, thus, no basis upon which Shultz could state a claim. The court noted that it was an issue of first impression for it to determine whether a notice of termination that is rescinded before the termination becomes effective constitutes an adverse employment action. Second Circuit precedent had defined adverse employment action to require a “materially adverse change in working conditions” that is “more disruptive than a mere inconvenience or an alteration of job responsibilities.” Examples of adverse employment actions provided by the court included termination of employment, demotion evidenced by a decrease in wage or salary, a less distinguished title, a material loss of benefits, significantly diminished job responsibilities, or other indices that are unique to the particular situation.
The court acknowledged that both Shulz and the congregation had appealing arguments as to why Shultz did or did not suffer an adverse employment action, but it deferred to guidance from the United States Supreme Court in notice cases involving issues that concerned the applicable statute of limitations. In those cases, the Supreme Court determined that a claim is actionable “when the employer notifies the employee [s]he is fired, not on the last day of h[er] employment.” Although the Second Circuit noted that the Supreme Court has not addressed whether a rescinded notice of termination constitutes an adverse employment action, the Second Circuit concluded that the notice cases regarding statute of limitations issues provided the necessary guidance because those cases held that a claim accrues “when the plaintiff has a complete and present cause of action.” The Second Circuit continued by explaining, “rescission of the notice at a point after the cause of action has accrued cannot eliminate the adverse employment action that has already occurred, and negate an accrued claim for relief.”
Despite this holding, the court recognized there might be limitations to its reach. For example, the court noted that it was not deciding “whether in some instances the period of time between the notice of firing and its rescission may be so short as to render the termination de minimis.” The court explained that this was not such a case, however, because the congregation did not attempt to rescind the termination for two weeks. The court further noted that its holding “does not apply to other types of potential adverse employment actions that an employer may seek to rescind at a later date[,]” explaining that termination of employment is a more anxiety provoking adverse action and “less significant employment actions taken by an employer, such as placing a counseling letter in an employee file, do not constitute adverse employment actions where they have been rescinded.”
Notably, the Second Circuit did not conclude that a subsequent rescission of an adverse employment action was without any legal significance whatsoever. In this regard, the court noted that the “consequences [for the subsequent rescission] come into play in connection with the calculation of damages.” The consequences or effect of the rescission could not be determined at the motion to dismiss stage, however, as those determinations are fact intensive and turn on the facts of each case.
For these reasons, the Second Circuit vacated and remanded the discrimination, retaliation, and interference claims, but affirmed the remaining decisions of the district court for reasons that are beyond the scope of this blog post.
The Second Circuit’s decision in Shultz is significant because it holds that employees have accrued a cause of action upon receiving notice of an adverse employment action, particularly termination of employment, even if that termination is subsequently rescinded before the termination takes effect. It will be interesting to see how the Second Circuit’s ruling is applied in other contexts, such as when the notice of termination is so short that it is “de minimis” or when other adverse employment actions are implemented and later rescinded. While it is encouraging for employers that they might have some wiggle room to avoid a claim if an adverse action is later rescinded, it is unclear how courts will reconcile that conclusion with the notion that a cause of action accrues the moment the employee is informed of the allegedly unlawful adverse employment action. On the other hand, these situations may not arise very often, as the potential to limit damages when an adverse employment action is rescinded may make a plaintiff’s damages claim so de minimis that those claims are not brought or are quickly resolved.