The Law @ Work

Terminated Employee’s Subtle Contract Modification May Prove Problematic for Employer

The US District Court for the Southern District of New York recently took a compassionate view of a terminated employee who, unbeknownst to the employer, unilaterally changed the parties’ Separation and Release Agreement.  According to the modified contract language, the terminated employee was not only entitled to a substantial severance, which the employer paid, but also retained the right to bring discrimination and harassment claims against the employer in the future.

In May 1993, Plaintiff Anu Allen (“Allen”) was hired by Chanel, Inc. (“Chanel”) as a receptionist at Chanel’s corporate headquarters, and she ultimately became the Samples Coordinator for the Fashion Division.  Allen alleged that she suffered and reported multiple instances of discrimination and harassment during her employment, based upon her age, race, sex, and sexual orientation.  In February 2012, Chanel terminated Allen when it eliminated her position.  Upon termination, Chanel presented Allen with the Separation and Release Agreement (“Separation Agreement”).  Under the Separation Agreement, Allen would be granted a substantial severance payment if she agreed to “release and discharge [Chanel]… from any and all claims… including, but not limited to, claims of discrimination and harassment on the basis of race, color,… sex, sexual orientation, age,… and any other legally protected characteristic…” (emphasis added).

Apparently unhappy with this provision, Allen retyped the entire third page of the Separation Agreement using the same font, margins, and words, except that she changed the word “including” in the above referenced portion to “excluding.”  Without informing Chanel of this small but materially significant change, Allen inserted the page back into its place among the other pages of the Separation Agreement, which was pre-signed by Chanel’s representative, and returned it to Chanel.  Despite a small, blank yellow sticky note on the third page that Allen claimed was meant to alert Chanel to the change, Chanel was unaware of Allen’s modification, and thus did not object to it.  Approximately five months after receiving her severance check, Allen filed a discrimination action against Chanel.

Chanel moved to dismiss Allen’s action on the ground that Allen had waived her right to assert discrimination claims against Chanel.  In support of its motion, Chanel submitted four documents, including both the Separation Agreement and Allen’s modified agreement.  In order to consider the documents provided by Chanel here, which the court determined were integral to Allen’s Complaint, the court had to convert Chanel’s motion to dismiss into one for summary judgment.

The court stated that the fundamental question was not which of the two agreements—the Separation Agreement or Allen’s modified agreement—represented the agreement between the parties, but rather whether the parties had entered into an enforceable contract in which Allen knowingly, willfully, and voluntarily waived the discrimination claims she was bringing.  To answer this question, the court looked at the totality of the circumstances surrounding the agreement.  The court concluded that, given the public policy concerns animating a waiver of discrimination claims, by changing the word “including” to “excluding” prior to the list of claims covered by the Separation Agreement before signing and returning it to Chanel, Allen manifested an intent to preserve her right to file such claims.  As a result, the court reasoned, Allen did not knowingly, willfully, and voluntarily waive her right to file a discrimination claim.  Thus, as Chanel had failed to show Allen waived the discrimination claims she raised in her Complaint, the court denied Chanel’s motion for summary judgment.

This case serves as a warning for employers.  It is important that separation agreements be carefully reviewed when returned by an employee.  As seen here, a small change can make a huge difference in the meaning of the agreement.

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