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Separation Code That Raises Red Flags Can Constitute Post-Settlement Retaliation

When serious problems in the workplace arise, a settlement and release that allows the employer and employee to go their separate ways often presents as an attractive resolution.  The employee can separate neutrally to look for a more suited work environment, while the employer can move on without fear of litigation.  Unless of course the agreement fails to properly address prospective employer inquiries, in which case an employer may well find itself defending a new claim for retaliation, as was the case in Leese v. Commonwealth of Pennsylvania Department of Insurance, No. 3:17-CV-00274 (M.D.Pa. 7/18/19).

In Leese, Plaintiff Leese and the Pennsylvania Department of Insurance (DOI) entered into a settlement agreement to resolve allegations of sexual harassment.  As part of the settlement, it was agreed that Leese would resign and could seek employment with any independent state agency outside the Governor’s jurisdiction, without interference by DOI.

After Leese left, DOI coded her separation as “voluntary resignation contact former agency,” instead of “resigned with notice.” Although Leese applied for numerous new jobs, she was not selected for any of them.

Thereafter, she sued DOI for retaliation under Title VII, alleging that the separation code negatively impacted her employment prospects. According to DOI, the designation allowed it to monitor whether Plaintiff was applying to entities within the Governor’s jurisdiction, which was prohibited by the settlement.  But the Director of HR testified that she could not remember any other employees for whom the code had been used.  And whenever DOI received reference calls, they were directed to the general counsel, rather than HR.  According to Leese, is was bad optics to have an attorney respond to reference checks.  Meanwhile, there was evidence that prospective employer application documents contained comments such as “not allowed to consider… unusual code,” and “strong candidate [but] Red Flags during OPF review.”

Arguments by DOI that Leese could not establish the adverse action and causation elements of her retaliation claim were rejected by the court, and DOI’s motion for summary judgment was denied.  Applying the “materially adverse” standard applicable to Title VII retaliation claims, the court concluded that DOI’s actions might well have dissuaded an employee from reporting sex harassment and that, at the summary judgment stage, Leese did not need to show that she actually lost jobs she otherwise would’ve gotten.  The court also concluded that DOI’s admission it wouldn’t have used the code, absent the sex harassment settlement, was enough to show causation.

The case underscores the importance of a carefully drafted settlement agreement, which in addition to addressing rehire, should provide for the who, what and when of responding to reference checks.  Had that process been agreed to at the time of settlement, it is likely DOI could have avoided the retaliation suit.


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