Can an employee sue its employer where she released all claims in severance agreement, even though the employer stopped payments per the agreement? In Yob v. Smith and Van Fossen, Mich. Court of Appeals No. 339607 (May 15, 2018), the court of appeals upheld the severance agreement even though the employer filed for bankruptcy and stopped payments half way through the agreement.
In Yob, the Plaintiff, Gina Yob was terminated from employment of 3S International, LLC (3S) as head of sales and marketing. Defendants Sid Smith was the owner, and John Van Fossen was the President and CEO of the company. After her termination, the parties entered into a Severance Agreement whereby they agreed to pay her six month’s salary, in exchange for a release of any and all claims she may have against 3S. She had a previously entered into an agreement whereby she agreed to non-competition provisions.
Before all payments were made, the Employer filed for bankruptcy, and the bankruptcy court granted 3S’s motion to reject the severance agreement based on 3S’s inability to pay. Thereafter, Plaintiff Yob sued the defendants claiming sex discrimination and retaliation in violation of the Michigan Civil Rights statutes. The Defendants filed, and the trial court granted their motion for summary disposition claiming that Plaintiff’s claims were barred by a prior release, and she would have to “tender back” the consideration received before she could sue the defendants. The Plaintiff claimed the consideration she received was for the non-competition portion of the agreement. Plaintiff appealed.
At the Court of Appeals, Plaintiff argued the trial court erred in applying the “tender back” rule. The Court stated that settlement agreements remain binding until rescinded for cause. The “tender back rule” requires that a party may not file a lawsuit asserting previously released claims or repudiate a release unless the party first repays all consideration received in exchange for the release. The only exceptions to the rule are “waiver of the plaintiff’s duty by the defendant” or “fraud in the execution” of the release.
Plaintiff argued that the tender back rule didn’t apply to her because the defendants failed to pay the full consideration. But the court cited the Stefanac case where it held “a plaintiff must, in all cases where a legal claim is raised in contravention of an agreement, tender the consideration recited in the agreement prior to or simultaneously with the filing of the suit.” Stefanac, 435 Mich. at 176. The court disagreed with plaintiff who argued she complied with the non-compete portion of the agreement in full, but the Defendants didn’t fulfill their obligations and misrepresented their portion of the agreement. However, the Court upheld that rule tender back rule, and reiterated that the only two exceptions were fraud and waiver, and neither of those issue were present here. Further, she was already bound to a separate non-competition agreement – while the new release was based on new consideration and had new obligations.
While the result may seem unfair for the Plaintiff, the takeaway here is that settlement agreement language must be drafted very carefully in order to avoid unintended consequences.
Having worked with Zana for 10 years, I can attest to her professionalism, her pragmatism, and most importantly, her integrity. I always get sound, thoughtful advice and guidance. From routine filings & updates to the highly unexpected, Zana’s there to help, always responding quickly and […]
Read MoreWe highly recommend Dalton & Tomich! As a start-up firm that has rapidly grown across the country in under 5 years, Dalton & Tomich has been integral to our sound, credible, and excellent in standard infrastructure. As we’ve scaled, Zana has been right by our […]
Read MoreAs a professional photographer in the wedding industry, reliable communication is very important to me. Noel was very knowledgeable and quick to respond to all of my questions and not just that, he also gave me suggestions when reviewing and updating my contract. The entire […]
Read MoreZana’s expert guidance has helped us to move forward with clarity and confidence in our business endeavors. She helped us create a new business entity, and a few years later to navigate a tricky buyout—all with a clear path forward for business growth. Her calm […]
Read MoreNoel’s guidance was much appreciated when redrafting my client contract. He was very professional, respectful of my time and potential costs, and was sincere with his advice. I trusted that he had the highest good for my business in mind. I will seek out his […]
Read MoreZana’s expertise in employee law has helped us refine and build a stronger operations and hiring strategy at my company. As a business owner of a small and fast growing company, I very much appreciate Zana’s ability to always step into any situation quickly and […]
Read More