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Severance pay falls under anti-bias law: Court

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Severance pay falls under anti-bias law: Court

RICHMOND, Va.—An appeals court ruling that current and former employees can seek redress under Title VII of the Civil Rights Act of 1964 in a case involving a severance package is expected to be influential nationally.

The decision in Karla Gerner vs. County of Chesterfield, Va., by the 4th U.S. Circuit Court of Appeals in Richmond, Va., also should remind firms that it is necessary to dispense benefits equitably, experts say (see related story).

According to the March 16 ruling, Ms. Gerner, who was the county's human resources director and had worked for the county since 1983, was told her position was being eliminated on Dec. 15, 2009.

She was asked to sign an agreement that offered her three months of pay and health benefits in exchange for her voluntary resignation and waiver of legal action against the county. Ms. Gerner rejected the offer a few days later and was terminated without severance pay or benefits.

She sued under Title VII, alleging disparate treatment on the basis of sex. She alleged the county did not offer her the same “sweetheart” severance package it offered similarly situated male colleagues when it sought to terminate their employment.

According to the ruling, Ms. Gerner alleged these men were transferred to positions with less responsibility at the same salary and benefits or were kept on the payroll with benefits for six months or more to enhance their retirement benefits.

In unanimously overturning a lower court's dismissal of the case, a three-judge panel of the 4th Circuit ruled that Title VII “protects both current and former employees from discriminatory adverse employment actions. Title VII makes it an unlawful employment practice for an employer "to discriminate against any individual' on the basis of membership in a protected class,” the court said. “Courts have consistently interpreted this intentionally broad language to apply to potential, current and past employees.”

The court also said the district court incorrectly held that severance benefits must be a “contractual entitlement” to be the basis of an adverse employment action under Title VII.

Citing the U.S. Supreme Court's 1984 ruling in Elizabeth Hishon vs. King & Spalding, the appeals court said that ruling “forecloses a holding that an employment benefit must be a contractual right in order for its denial to provide the basis for a Title VII claim.”

The case was remanded to the lower court for further proceedings.

Mark D. Dix, managing partner of Bucci & Dix L.L.C. in Chesterfield, Va., and the plaintiff's attorney in the case, said the ruling is “a game changer for employers—certainly in the 4th Circuit, if not the country—with respect to the offering of severance benefits.”

“This is the first clear enunciation that I could find in any federal appeals court stating that Title VII protects against disparate treatment in the offering of severance benefits, regardless of whether they're offered contractually, voluntarily or otherwise,” Mr. Dix said.

The ruling also is important because it is “the first clear statement by this appeals circuit, the 4th Circuit, that Title VII protects against disparate treatment of former employees,” he said.

Brian T. Chandler, a member of law firm Protorae Law P.L.L.C. in Vienna, Va., who was not involved in the case, said the ruling means that employers in the 4th Circuit “have to be cognizant of the various protected classes of Title VII, and be aware they may be potentially liable” if they offer different severance packages to those in the protected classes.

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“Given the law that they've relied upon in the decision,” said Eric A. Welter, president of Welter Law Firm P.C. in Herndon, Va., “I don't think it's an aggressive reach for them to come to that conclusion.”

“As a lawyer that drafts severance packages, while I may disagree with the decision,” it is “helpful to be able to advise my clients as to where the boundaries are on treating people consistently when you're offering them severance packages,” Mr. Welter said.

Robin E. Shea, a partner with Constangy, Brooks & Smith L.L.P. in Winston-Salem, N.C., said she did not find the decision to be remarkable. “It doesn't surprise me that an employer would be prohibited from granting even a discretionary benefit in a discriminatory way,” she said in citing the U.S. Supreme Court's 1997 ruling in Charles T. Robinson Sr. vs. Shell Oil Co. and other cases.

In Robinson, which reversed a 4th Circuit decision, the nation's high court ruled that it is unlawful for companies to retaliate against former employees who file discrimination charges.

Other observers anticipate the ruling will be influential outside the 4th Circuit.

“I think it'll be an influential decision in that it clarifies that offering different severance packages to people in different protected classes” can result in a claim under Title VII, Mr. Welter said. “Certainly, there are other circuit courts around the country that will be willing to embrace that reasoning without hesitation.”

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  • Severance pay must be set with equality in mind

    RICHMOND, Va.—At minimum, the 4th U.S. Circuit Court of Appeal's ruling in Karla Gerner vs. County of Chesterfield, Va., should serve as a reminder to employers to treat all employees equally, observers say.