Shultz v. Congregation Shearith Israel of NYC, Spanish & Portugese Synagogue: Can an employee sue for discriminatory termination if the employer rescinds the action before it is effective?

In Shultz v. Congregation Shearith Israel of NYC, Spanish & Portugese Synagogue, No. 16-3140-cv (Aug. 10, 2017), the Second Circuit held that Alana Shultz could pursue her claim that she was fired because of her pregnancy, even though the defendant rescinded the termination decision before it became effective.

The Second Circuit's decision is grounded in Supreme Court precedent addressing when an employee's termination claim accrues (or arises) and triggers the filing period for bringing a claim. 

Pursuant to that precedent, an employee's termination claim accrues when she is notified of the termination, even if the termination is effective at a later date. This means that the time frame for challenging the termination starts when the employee receives notice. In some cases, the time frame could even expire before the termination is effective.

Because an employee's termination claim accrues when she receives notice, the Second Circuit disagreed with the lower court's conclusion that a rescinded termination decision does not constitute an adverse action:

If the claim accrues at the time of notification of termination, . . . rescission of the notice at a point after the cause of action has accrued cannot eliminate the adverse employment action that has already occurred, and negate an accrued claim for relief. Accordingly, we conclude that the notice of termination itself constitutes an adverse employment action, even when the employer later rescinds the termination.

Significantly, however, the court noted that the good-faith rescission of a termination decision can affect the damages that a claimant might be entitled to. In this case, despite the rescission of the termination decision, Shultz did not return to work after the original date of her termination. She contended that the defendant's offer of reinstatement was "not a bona fide offer of unconditional reinstatement." Because there was a dispute as to whether the employer's rescission was in good faith, a fact finder would have to determine whether Shultz acted reasonably in rejecting the defendant's offer to reinstate her.

In closing, the court noted some potential limits of its holding. The court noted, for instance, that in some cases the time between a notice of termination and its rescission could be so short that the termination would be de minimis. As an example, the court noted that an impulsive "You're fired" followed by an immediate revocation would present different circumstances from the ones in this case. Here, the defendant did not rescind the termination for two weeks, during which Shultz "had ample time to experience the dislocation of losing her employment at a particularly vulnerable time, undertake the effort of retaining counsel, and inform the Congregation that she was going to file suit."

While this distinction makes sense to me, I'm a little surprised that the court also appears to have limited its holding to rescinded terminations. It is true that a termination may impose more harm than other adverse actions, and therefore, it might be easier to establish an adverse action with respect to a rescinded termination than with respect to another kind of rescinded adverse action. Still, the court seems to have gone further, viewing the distinction between terminations and other adverse actions as one of kind rather than merely degree: 

A notice of termination is unlike other types of actions that an employer may take towards an employee in that it announces the complete termination of the employment relationship. To put it mildly, "[e]ven under the most optimal circumstances ․ termination of an employee is likely to give rise to bad feelings and anxiety."

To illustrate, the court points out that it has held that a rescinded counseling letter does not constitute an adverse action. But the court fails to acknowledge that a counseling letter very well might not constitute an adverse action even if it is not rescinded. So while a termination decision might be distinguishable from a counseling letter, there's less reason to distinguish it from other employment decisions that are clearly materially adverse, such as demotion, failure to promote, or denial of a pay raise. If someone has to hire an attorney and threaten to sue, I don't see why it should generally matter what kind of an adverse action is involved.

A final observation I have is that the court's holding may not apply to the federal sector. Federal employees are covered by regulations adopted by the EEOC, which provide that the time frame for challenging a personnel action, such as a termination, starts when the personnel action is effective. Thus, contrary to in the private sector, a federal sector claim appears not to accrue until the challenged action's effective date. If that is so, then based on the reasoning in Schultz, it would seem to follow that a federal sector action that is withdrawn before its effective date is not an adverse action.

This blog reflects the views solely of its author. It is not intended, and should not be regarded, as legal advice on how to analyze any particular set of facts.