Severance

Nonprofit Breached Mutual Non-Disparagement Provision Of Severance Agreement.

Dr. Terri Wright was the Vice President of Program and Community at the Eugene and Agnes E. Meyer Foundation, a nonprofit that promotes social and racial equity in the Washington D.C. area.

During Wright’s first year at the Foundation, she received a favorable performance evaluation and a raise. At the same time, the CEO criticized Wright for her “interpersonal skills and communication issues,” feedback she had not received from anyone else at the organization. Wright alleges this criticism was pretext to mask the CEO’s discriminatory animus. Wright also described a general culture of racial inequity at the Foundation. During a round of internal company discussions about racial equity in the workplace, several employees of color shared their own concerns and experiences regarding race issues within the Foundation.

In October 2019, without any notice or opportunity for discussion, the CEO terminated Wright. Wright and the Foundation signed a severance agreement, which included a release of employment-related claims against the Foundation and employees, and a mutual nondisparagement clause. The mutual non-disparagement clause included language that the Foundation would direct its officers, directors, and employees with direct knowledge of the severance agreement not to make any false, disparaging or derogatory statements about Wright.

About a month after Wright was fired, the CEO told another nonprofit leader that Wright was let go because she was “toxic” and created a “negative environment,” and that two-thirds of the Foundation staff would have quit if Wright stayed. Wright sued the Foundation and the CEO for breaching the severance agreement, for doing so in a racially discriminatory manner in violation of 42 U.S.C. Section 1981, and for defamation.

The trial court dismissed all three claims, finding the non-disparagement clause obligated the Foundation only to direct its employees not to disparage Wright, but the Foundation and its officers and employees were free to disparage her. The trial court found that the Section 1981 claim failed because it was based on a breach of the severance agreement. The trial court found there was no defamation because the CEO’s statements were protected by the common interest privilege because they were made by the CEO in her capacity as the Chair of the Board of a separate non-profit organization to the CEO of that organization.

In regard to the breach of contract claim, Wright argued that the non-disparagement clause’s promise to direct officers, directors, and employees to not disparage her was a promise that the Foundation itself would also not disparage her. The CEO herself signed the severance agreement. The Foundation and CEO argue that their duty began and ended with the promise to direct its employees not to disparage Wright.

The Court of Appeals found that the severance agreement was ambiguous, and reasonably capable of Wright’s interpretation. The clause was titled as a mutual nondisparagement agreement and the clause contained words such as “mutual” and “likewise,” indicating a corresponding duty to not disparage Wright. The Court of Appeals found it would be unreasonable to follow the Foundation’s interpretation, which would provide that the Foundation could send an email to all employees and Board members directing them not to make false, disparaging, or derogatory comments about Wright, and then only minutes later, release a public statement disparaging Wright.

The Court of Appeal then turned to the Section 1981 claim. Section 1981 protects the right to make and enforce contracts free from discrimination. To prevail, Wright must establish a prima facie case of discrimination: (1) that she is a member of a protected class; (2) she suffered an adverse employment action; and (3) the unfavorable action gives rise to an inference of discrimination.

The Court of Appeals concluded that Wright alleged a