Last week, the U.S. Court of Appeals for the Second Circuit clarified its standard relating to rescinding terminations, and more specifically, how they interpret “adverse consequences.” The issue came before the court in a matter where an employee returned from her honeymoon, visibly pregnant, and was told that her position was going to be eliminated within a few weeks. Shortly thereafter, the employee retained an attorney and notified her employer of the same. Several days later, the employer rescinded her termination and reinstated her position. When analyzing rescinding termination claims under Title VII, the standard is to determine if the reinstatement had any lasting “adverse consequences.” Various circuit courts and lower courts have historically considered whether the employee was restored to the same salary, benefits, and title when reinstated in order to determine if there were adverse consequences to the employee. If the same material conditions were reinstated, courts would not recognize adverse consequences. Here, the employee did not claim any difference in salary, title, or benefits and therefore, the lower court ruled that the employee incurred no adverse consequences.

On appeal, the Second Circuit stated that it has not necessarily adopted the interpretation that adverse consequences purely relate to the restoration of the same salary, title, and benefits. Instead, the Court had determined only that these are factors — among others — to consider in making the determination as to whether the employee has suffered adverse consequences, and that each situation is unique. In issuing this decision, the Second Circuit referenced two Supreme Court decisions that focus on the “notice rule” applied in the context of determining when a cause of action for discriminatory termination accrues for the purposes of the statute of limitations. Under the “notice rule,” a discrimination claim is actionable when the employer notifies the employee of the termination, not just upon the last day of employment. Here, the Second Circuit decided to adopt the Supreme Court’s notice rule standard for purposes of rescinded termination claims, and determined an employer that has already noticed an employee of a termination and subsequently reinstates the employee must still face any legal consequences that may arise from the original notice of termination, even though this employee was reinstated before the effect of her termination and with the same salary, title, and benefits. Under this notice rule interpretation, the notice of termination the employee here received when she returned from her honeymoon was, in itself, an adverse employment action. In reaching this determination, the Court noted that there were two weeks between the notice of termination and the employee’s reinstatement, and within this two week period the employee experienced the loss of her job and undertook the effort of retaining counsel all during a vulnerable time.

The Second Circuit was careful to note that this holding is specific to notice of termination actions, not necessarily any other types of potential adverse employment actions that an employer may seek to rescind at a later date. However, this clarification of the “adverse consequences” standard relating to notice of terminations represents a shift in exposure to liability; employers should keep this in mind when making their termination decisions.

If you have questions about the impact of this development, please contact:

• Peter J. Biging | 646.292.8711 | pbiging@goldbergsegalla.com
• Reshma Khanna | 646.292.8765 | rkhanna@goldbergsegalla.com
• Or another member of Goldberg Segalla’s Employment and Labor Practice Group