Non-Profit Breached Mutual Non-Disparagement Provision Of Severance Agreement

CATEGORY: Nonprofit News, Private Education Matters
CLIENT TYPE: Nonprofit, Private Education
DATE: Jun 22, 2023

Dr. Terri Wright was the Vice President of Program and Community at the Eugene and Agnes E. Meyer Foundation, a non-profit 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 in the organization. Wright alleges this criticism was a 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 non-disparagement 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 non-profit 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 non-disparagement 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 prima facie case of discrimination. Wright clearly met the first two prongs because she is African American, and therefore a member of a protected class, and she was terminated, meaning she suffered an adverse employment action. Wright successfully alleged that the action gave rise to an inference of discrimination because the Foundation did not defame her predecessor, a white man who was also separated from the company, nor any other non-African American employee. Additionally, the CEO praised Wright’s performance during her first year, indicated that Wright’s communication and relationship with her team were improving, and gave Wright a raise. The praise was specific and detailed. The CEO’s criticism, on the other hand, was vague and subjective, stating that Wright was “too busy in the weeds,” and terminating Wright without notice or warning, inconsistent with her performance record.

The Court of Appeals then considered the defamation claim. The Foundation and CEO argued that Wright’s defamation claim failed because the CEO’s statements were protected by the common interest privilege because the CEO and other non-profit leader were leaders of the same non-profit organization at the time the statements were made. The Foundation and CEO also argued that the statements were opinions and therefore not capable of defamation.

For the common interest privilege to apply, the statements must be made in good faith, on a subject in which the party communicating has an interest, to a person who has a corresponding interest. The Court of Appeals found that the common interest privilege did not apply because the statements were made in malice. Wright had a favorable performance evaluation and a raise, and the CEO acknowledged that Wright had been working on her communication. The CEO had raised Wright’s performance to the other non-profit leader unprompted because the CEO was feeling backlash over the firing. The CEO used unprofessional language to describe Wright, calling her toxic and claiming that two-thirds of the staff would quit if Wright remained. The Court of Appeals also found the statements were not opinions because they had an implicit factual basis.

The Court of Appeals reversed the trial court’s decision to dismiss the three claims.

Wright v. Eugene & Agnes E. Meyer Foundation (D.C. Cir. 2023) __ F.4th __ [2023 WL 3589084.

Note: This case is an important reminder that mutual non-disparagement clauses can create risk for a school because a court may hold the school accountable for anything employees say, even those who are unaware of a settlement agreement. 

View More News

Nonprofit News, Private Education Matters
Non-Profit Breached Mutual Non-Disparagement Provision Of Severance Agreement
Nonprofit News, Private Education Matters
NLRB Returns To Previous Test For Determining Independent Contractor Status