“Exercise Caution When Issuing a Notice of Termination”

by Sheila Gladstone and Ashley Thomas

It is not uncommon for employers, especially in the public sector, to issue a “Notice of Termination” in advance of a final termination decision. Notices of termination usually occur after the employer has investigated and made an initial decision to terminate employment, to give the employee a final opportunity to meet with the decision-maker and provide any information that might change the outcome. In other situations, the employer may choose to have a notice period to allow for transition of duties or to allow the employee time to search for new employment. Employers may believe that if they decide, after hearing from the employee, not to finalize the termination decision and instead allow the employee to continue employment, then they are off the hook for an employment discrimination claim because the employee does not have an “adverse employment action” to complain of, as required for such a claim. But a federal appellate court recently rejected that argument, holding that a notice of termination, even if later rescinded, constituted an adverse employment action, and so the plaintiff’s suit against the employer was proper.

In Shultz v. Congregation Shearith Israel of City of New York, 867 F.3d 298 (2d Cir. Aug. 10, 2017), the plaintiff, a program director at a synagogue, was recently married and just before leaving for her honeymoon, informed the synagogue’s executive director that she was pregnant. After she returned from the honeymoon about a month later, management engaged plaintiff in an extensive discussion about the pregnancy, and then informed her that her employment was being terminated, to be effective 25 days later. Before the termination was effective but after the notice, plaintiff’s lawyer informed the synagogue’s attorney that plaintiff was planning to pursue claims stemming from the termination. The next week, before the termination’s effective date, the synagogue rescinded the termination.

Plaintiff sued the synagogue on the basis of the notice, alleging, among other claims, that the synagogue discriminated against her on the basis of her pregnancy, and interfered with her rights under the Family and Medical Leave Act (FMLA). The trial court dismissed her claims, finding the rescinded termination did not constitute an adverse employment action, as required for such claims.

The Second Circuit Court of Appeals reversed. Following the reasoning of the U.S. Supreme Court’s “notice rule” applicable to determining whether a cause of action is time-barred under the statute of limitations, the appeals court held for the first time that the notice itself constituted an adverse employment action. The court focused on the fact that the period of time between the notice and rescission was significant (two weeks), and so she had ample time to experience the termination and its consequences—a very brief period might have led to a different result. The court also noted that an employer’s good-faith decision to rescind can minimize damages.

Though the Second Circuit’s decision is not binding in Texas, its reasoning and holding could be adopted in Texas’s own Fifth Circuit, especially since it cites and follows reasoning from decisions by the U.S. Supreme Court.

In light of Schultz, employers should, before issuing a notice of termination, consider all legal issues, including potential claims, as the notice itself may serve as the “adverse employment action” for an employee’s discrimination claim, resulting in a court’s consideration of the employer’s actions leading up to the notice. Also, if the notice is just an initial stage in the process, employers should consider ensuring the notice is named to reflect its preliminary nature, which may provide employees with weaker grounds for an argument that they have already begun to experience the effects of the termination and its consequences, thereby allowing the employer to shift its decision with less risk. Finally, employers may consider delaying or not issuing notices of termination when the facts are especially unclear or disputed, and instead wait until more facts are gathered, before informing employees their job is on the line.

Sheila Gladstone is the Chair of the Employment Law Practice Group, and Ashley Thomas is an Associate in the Employment Law Practice Group. If you have any questions related to this article or other employment law matters, contact Sheila at 512.322.5863 or sgladstone@lglawfirm.com, or Ashley Thomas at 512.322.5881 or athomas@lglawfirm.com.