Diversity & Inclusion, HR Management & Compliance

Mutual Mistake Helps Ex-Employee’s Bias, Retaliation Claims Avoid Dismissal

If a terminated employee signs a contract releasing all claims against you, she can’t sue you, right? Wrong. A new Missouri Court of Appeals decision illustrates the effect a mutual mistake by the parties can have on the enforceability of the release. Read on to learn how Missouri courts analyze the issue.

Terminated

Facts

From 2001 to 2018, Ann McGruder was employed by a Missouri university. In 2016, she began working in the university’s school of medicine as an associate director of administration. She was then terminated as part of a departmental reorganization. While in her position with the medical school, she alleges she was subjected to age and sex discrimination and retaliation.

Afterwards, McGruder was offered the opportunity to participate in the university’s layoff and transition assistance program, which provides severance pay and certain employee benefits. She refused to take part because the program required her to sign a contract releasing any claims she had against the university, including for discrimination and retaliation.

In January 2018, McGruder accepted a position with a not-for-profit foundation physically located within the university. The foundation is neither owned nor controlled by the university, but it outsourced its payroll and benefits administration to the school. She was employed exclusively by the foundation and paid exclusively from its funds.

In July 2018, McGruder filed a discrimination charge, claiming she had been discriminated against based on age and sex and that she had been a victim of unlawful retaliation by the university.

In the fall of 2018, McGruder was informed the foundation was struggling financially and she would likely be laid off. The foundation informed her it would pay her severance benefits similar to what the university provides its employees.

In March 2019, McGruder was laid off from the foundation. To receive her severance, she was asked to sign a contract releasing all claims against the foundation. The document she was asked to sign was the exact agreement she had refused to sign when she was previously laid off from the university. The document stated she would release all claims against the university and didn’t mention the foundation.

McGruder signed the agreement, believing she was releasing only her claims against the foundation. She then filed her petition for sex discrimination and retaliation against the university, which argued her claims couldn’t be filed because she released them by signing the March 1, 2019, agreement. The court agreed and dismissed the claims. She appealed.

What is a Mutual Mistake?

In Missouri specifically, a mutual mistake exists when both parties have memorialized in writing what neither actually intended. In some cases, the court will reform the contract to properly express the parties’ intent. Determining whether a mutual mistake occurred requires analysis of several factors, such as the contract wording, the parties’ relationship, the contract’s subject matter, the usages of the business, the circumstances surrounding the execution of the contract, and its interpretation by the parties.

When the university asked to have McGruder’s claims dismissed, she argued a mutual mistake occurred when she signed the agreement, believing she was releasing only claims against the foundation. The trial court disagreed, siding with the university.

Appeals Court Sides with Terminated Worker

The appeals court concluded the evidence was sufficient to put the issue of a mutual mistake in dispute, precluding the dismissal. Although the contract’s language clearly released claims against the university, the court noted McGruder introduced sufficient evidence of confusion from the circumstances surrounding the contract’s execution.

A mutual mistake can occur when a party is mistaken about how the other party’s identity is expressed in the contract, according to the court. The record showed McGruder truly believed she was releasing claims against only the foundation, not the university. The  court agreed the contract language was clear but concluded the employee adequately established a mutual mistake might have occurred, meaning the trial court shouldn’t have dismissed the claim.

Practical Tips for Departing Employees

McGruder’s case provides insight into an issue many of you face on a regular basis—how to ensure a departing employee’s release of claims against the employer is valid. It also demonstrates the factual analysis courts follow in analyzing the parties’ understanding of the contract.

Be mindful of the circumstances surrounding the execution of contracts with employees, especially terminated workers. You should ensure both parties clearly understand what the document says, who it involves, and its effect on both the employee and the employer. You also should be sure to present employees with the correct document to sign.

Because employee departures involve a number of legal issues, be sure to consult with legal counsel before taking any significant action.

Nicholas D. Slovikoski is an attorney with Armstrong Teasdale LLP in Kansas City, Missouri. You can reach him at nslovikoski@armstrongteasdale.com.