Hearsay, Speculation Insufficient to Show Material Breach of Separation Agreement

A former employee of Browns Living, LLC, filed a federal lawsuit in Wisconsin, alleging the assisted living management company unlawfully terminated her employment because of race discrimination in violation of Title VII of the Civil Rights Act of 1964 and disability discrimination in violation of the Americans with Disabilities Act (ADA). Although she signed a separation agreement and release of claims, she argued she wasn’t barred from filing her claims because the company had materially breached the agreement, making it null and void. The court disagreed, granting the employer’s request for summary judgment (dismissal in its favor without a trial).

Facts

Kelly Armstrong, a white female, began working for Browns as a director for its Milwaukee region in January 2020. She was responsible for managing six assisted living facilities in the Milwaukee area, hiring and supervising care managers for each facility, and traveling to them on a routine basis. She reported directly to the director of operations.

Armstrong experienced high levels of anxiety during her employment with Browns. She felt she had insufficient time to prepare for meetings and other interactions. In March 2020, she told her supervisor that her anxiety was affecting her work performance and asked if performance reviews could be given to her in writing before meeting with her supervisor to discuss them. The supervisor had no concerns with Armstrong’s performance and saw no need to discuss her request any further. After this, the supervisor noted that her attitude seemed to worsen.

At the same time, there was high staff turnover at the facilities Armstrong oversaw. Numerous employees cited her management or behavior as their reason for leaving. Her supervisor suggested on numerous occasions that staff would respond better to a Black supervisor.

In late March 2020, Armstrong met with her supervisor and other directors to discuss her work performance and the staff turnover at her facilities. They discussed concerns about her lack of leadership and her ability to manage staff. On April 1, Browns notified her that it had decided to terminate her employment.

After she was fired, Browns and Armstrong entered into a separation agreement, waiver, and general release. As part of the agreement, it paid her $10,000 in exchange for her waiving and releasing her right to assert any claims against it arising from her employment. The agreement also defined a procedure under which she would procure reference checks if a prospective employer required one. The employer agreed not to disparage or otherwise attempt to discredit her if requested to provide a reference.

Armstrong failed to find new employment months after she signed the agreement. She suspected Browns may have been giving negative references to potential employers. As such, she hired a private company called Check My References to pose as a prospective employer and obtain a reference from Browns.

On September 18, 2020, an associate from Check My Reference emailed Armstrong with a report regarding her discussion with Armstrong’s former supervisor. The associate concluded the reference could be perceived as negative.

Armstrong considered the agreement null and void because she believed Browns was providing negative references. She then filed a lawsuit, raising claims under Title VII and the ADA.

Opinion

Browns asked the court for summary judgment, seeking to dismiss Armstrong’s claims on the grounds that they were barred by the agreement and that her claims failed on the merits. Armstrong argued that although she did waive and release any claims against Browns as part of the agreement, she wasn’t precluded from raising claims in her lawsuit because it had materially breached the agreement by giving negative reviews, making the agreement null and void and clearing the way for her to pursue her claims.

The court sided with Browns and found Armstrong’s claims were barred by the agreement. First, the court stated she failed to demonstrate the company had materially breached the agreement because her claim relied entirely on the email from Check My Reference, which is inadmissible hearsay.

Specifically, the email relayed an out-of-court statement (the telephone conversation between Check My Reference and Armstrong’s former supervisor) and was offered to prove the truth of the matter asserted (that Browns provided a negative reference).

The court noted Armstrong failed to provide any sworn declaration from anyone with personal knowledge describing the conversation and, as such, the email wasn’t admissible. Moreover, the court found that even if she had provided a sworn declaration about the email, it wasn’t evidence of a material breach because it wasn’t serious enough to destroy the essential purpose of the contract.

Specifically, the court noted she presented no evidence the company had provided a negative reference to an actual, potential employer. Rather, she was relying on speculation and conjecture that Browns had provided a negative reference to a prospective employer, which isn’t sufficient evidence to survive a summary judgment request.

Additionally, the court noted Armstrong hadn’t returned the funds she received in exchange for signing the agreement, as required by case law in the U.S. 7th Circuit Court of Appeals (whose rulings apply to all Wisconsin employers). Armstrong v. Browns Living, LLC, No. 22-cv-329-wmc, 2023 WL 6037653 (W.D. Wis. Sept. 15, 2023).

Bottom Line

Obtaining a separation agreement and release of claims isn’t the end of the story when you fire an employee.

The employee may still file a lawsuit against you despite the release and agreement, so it’s critical that you adhere to your duties under the release and agreement on a continual basis.

This article, slightly modified to note recent updates, was featured online in the Wisconsin Employment Law Letter and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.