We repeatedly advise clients to adopt a severance pay plan setting forth the amounts of severance pay for departing employees, as well as the terms and conditions of such benefits, and to follow the plan consistently, rather than making different promises and offers of severance pay to different employees. This advice is supported by both logic and law, the latter most recently illustrated by Gerner v. County of Chesterfield.* In Gerner, the U.S. Court of Appeals for the Fourth Circuit reversed a district court decision that had been entered for the employer, holding that offering different amounts of severance pay to separating employees may be an adverse action that is actionable under Title VII, even despite the fact that the lower offer that was made to the separating employee was extended after the termination of his/her employment. Human Resources employees are often more knowledgeable than other employees about various "one-off" severance pay offers to other employees. Therefore, an employer that is not consistent in the administration of a severance pay plan faces potential discrimination liability.
In Gerner, a 25-year employee was told her position was being eliminated in a "re-organization," and was offered three months' pay and benefits, conditioned on her execution of a release agreement. After a few days, she declined the offer. Her layoff was then made effective on the date she was first given notice, and she received no severance or benefits. In her Title VII case, she alleged that her employer had not offered her the same "sweetheart" severance package it "offered her similarly situated male counterparts" when they were dismissed. She alleged that male employees had been permitted to transfer to lesser positions, rather than be fired for poor performance, or had been allowed to stay on the payroll for up to six months, to enhance their retirement benefits.
The district court dismissed the claim, because (1) the plaintiff had no contractual entitlement to any severance pay or benefits, and (2) the offer was made to her after her employment had been terminated. The Fourth Circuit rejected both these grounds for dismissal.
On the first point, the Court of Appeals held that an employer's discriminatory denial of a non-contractual employment benefit constitutes an adverse employment action. It distinguished cases where employee terminations were voluntary and where employees waived their benefits in exchange for continuing their employment.
The Court of Appeals also ruled that the allegations of the Complaint were sufficient to state a claim that the severance offer was made to the plaintiff before her employment was terminated. More significantly, the Court further ruled that - even if the offer was made to her after the termination of her employment - the offer could still be actionable. Title VII protects both current and former employees from discriminatory adverse employment action. "Courts have consistently interpreted [Title VII's] intentionally broad language to apply to potential, current, and past employees."
Employers that tend to offer different severance terms to employees should keep in mind that their actions, if discriminatory, may create discrimination liability.
* Gerner v. County of Chesterfield. --- F.3d --- (4th Cir. Mar. 16, 2012).