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Is a Covenant Not to Re-Apply With a Former Employer After a Settlement Enforceable?

Settlement and/or Severance Agreements may include a clause regarding re-employment with the same employer. An example might read, "Employee agrees that the Employer and any related or affiliated entities have no obligation to consider her for future employment and can terminate her employment if she becomes employed with Employer." These clauses may seem daunting but typically mean that the employee may still apply for a position with a former employer, but the employer is not required to hire them back. This clause may be included in the agreement because, if the employer later refuses to rehire a settled employee for any reason, the employee could file a retaliation claim under the applicable federal or state anti-discrimination laws stating that the reason for the decision not to hire her was in retaliation for her previous legal activity.

For example, Modern Woodmen of America ("MWA") hired Ms. Jencks ("Jencks") as a district manager in 1990. In 1994, Jencks was terminated and offered a contract as a district representative, a sales agent position. She accepted the demotion. Due to on-going production problems, Ms. Jencks was terminated from the district representative position but offered a district agent contract. Ms. Jencks did not accept this demotion and instead filed a claim with the Equal Employment Opportunity Commission ("EEOC"). Ms. Jencks then sued MWA adding claims of sexual harassment, retaliation, and racial discrimination. Ms. Jencks was successful on her claim on sexual discrimination in a jury trial and the court ordered her to be reinstated to the district manager position. Jencks and MWA entered into a Mutual, General, and Complete Release (the "Settlement Agreement") which, among other things, included a provision that Jencks waived any entitlement to re-employment or reinstatement with MWA.

A few years after Jencks' termination, MWA sent a mass mailing to insurance agents in her area soliciting applications for the position of sales agent to which Jenks applied. The state manager and Jencks' former supervisor replied that because of her settlement agreement and "history" with the company, the ultimate hiring decision would have to be made by the corporate office. Corporate's letter sent to Jencks a few days later stated she wasn't eligible for two reasons: 1) her insufficient sales results when she previously worked for the company and 2) the terms of her settlement agreement barred her from reemployment.

Jencks sued MWA a second time for discrimination and also claimed retaliation for her prior suit against the company. MWA contended it was not retaliating, but rather was enforcing its rights under the termination settlement agreement. A case for retaliation is made where the employee can show 1) a protected employee action; 2) an adverse action by an employer either after or contemporaneous with the employee's protected action; and, 3) a causal connection between the employee's action and the employer's adverse action. Morgan v. Hilti, Inc. 108. F 3d 1319, 1324 (10th Cir. 1997). The Supreme Court ruled that former employees fall within the definition of "any employee" for purposes of a retaliation claim. Robinson v. Shell Oil Co., 519 U.S. 337 (1997). Assuming that the employee establishes those three (3) elements, the burden shifts to the employer to articulate a legitimate, nondiscriminatory reason for the adverse action. In Jenks' case, the trial court held that the Settlement Agreement was a legitimate non-discriminatory reason for refusing to hire her. The burden then shifts back to the employee to show that the non-discriminatory reason is pretext for discriminatory intentions. In this case, Jencks was unable to prove that the reason for MWA's refusal to hire her was pretextual and her claims were dismissed.

In 2008, the EEOC vowed to oppose any term in a separation agreement that denies the employee of an opportunity to reapply for a job with that employer, stating that such a term was retaliatory. However, relevant case law suggests the opposite. Courts have consistently enforced covenants not to reapply as a matter of contract law. Specifically, the Tenth Circuit has held that a settlement agreement containing a covenant not to reapply for employment does not constitute retaliation when it is applied to an employee who violates the promise not to reapply and submits an employment application to her prior employer. See, Jencks v. Modern Woodmen of Am. 479 F.3d 1261 (10th Cir. 2007).

If you have a question about retaliation or a clause in a Settlement and/or Severance Agreement, contact us at www.BryanKuhnLaw.com/ to discuss your legal rights.

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