In a divided opinion, the Sixth Circuit recently ruled that the common law “tender back” doctrine is inconsistent with the remedial purposes of Title VII and the Equal Pay Act (“EPA”). Under the common law doctrine, when a party seeks to avoid a contract on the grounds that it was obtained by fraud, duress, or the like, she must first “tender back” any benefits received under the contract. Under the Sixth Circuit’s ruling, employees who receive severance in exchange for a release of claims but later allege that the release was obtained under duress do not need to return the severance pay prior to instituting a lawsuit under Title VII or the EPA. Instead, if their claims are successful, the severance pay will be deducted from any damages ultimately recovered.

In McClellan v. Midwest Machining, Inc., the plaintiff claimed that she was fired due to her pregnancy and that she was paid less than male employees performing substantially similar duties. She testified that on the day of her termination, the president of the company pressured her into signing an agreement providing her with $4,000 in severance in exchange for a release of all claims against the company. Based on her testimony, the district court concluded that a jury could find that she did not enter into the agreement knowingly and voluntarily.

Nonetheless, the district court granted summary judgment to the employer due to the “tender-back” doctrine. The district court reasoned that although a contract is voidable on grounds of duress or involuntariness, a plaintiff ratifies the contract unless she “tenders back” the consideration prior to filing suit. The plaintiff, however, did not tender back the severance pay until approximately three weeks after filing suit.

In a 2-1 opinion, the Sixth Circuit reversed and remanded. Citing Supreme Court cases refusing to apply the doctrine in the context of the Federal Employers Liability Act and the Age Discrimination in Employment Act, the majority held that the tender-back doctrine is incompatible with the remedial purposes of Title VII and the EPA. Because a discharged employee often will not have the means to tender back the consideration, the majority worried that the tender-back doctrine would incentivize employers to pressure employees into executing waivers under duress, knowing that it will be difficult or impossible for those employees to repay the consideration and avoid ratification. Instead, the majority ruled that the consideration should be deducted from any award obtained by the employee.

In the alternative, the majority also explained that even if the tender-back doctrine applied, the plaintiff fulfilled its requirements. The majority ruled that, contrary to the district court’s interpretation, the tender-back doctrine under federal law requires repayment only within a “reasonable time” of the plaintiff’s learning of her rights. On the particular facts of the case, the majority found that the plaintiff’s tendering back within three weeks of filing suit was reasonable.

Judge Thapar concurred in part and dissented in part. Judge Thapar argued that the statutory texts of Title VII and the EPA did not clearly override the common law tender-back and ratification doctrines, and so those doctrines should apply. He also delved into the history of the tender-back doctrine at law and in equity, arguing that the time by which the plaintiff must repay the consideration—prior to instituting suit versus within a reasonable time of learning her rights—depends on the type of remedies she seeks. Accordingly, he would have remanded the case for further fact-finding regarding the remedies the plaintiff sought as well as the end date of her alleged economic duress.

In sum, employers in the Sixth Circuit should be aware that plaintiffs who present meritorious claims that they signed a release under duress will be permitted to go forward with the merits of their Title VII and EPA claims, even if they have not yet returned the consideration for that release. Employment attorneys at Stites & Harbison can help guide employers at the outset of the termination and severance process to ensure that employees are not unfairly pressured into signing releases that could later be voided.

To read the Sixth Circuit’s opinion in full, please click here.