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BUSINESS LAW 1: The tender back rule and release claims.

In this case, plaintiff worked for LLC as the head of sales and marketing. Defendant was the owner, chief executive officer, and chairman of the board of directors, while defendant J became chief operating officer and president of the company during plaintiff’s employment. Plaintiff’s employment agreement with LLC made her eligible to receive severance pay upon termination, on the condition that, as part of any severance agreement, she release any and all claims she might have against LLC.

Plaintiff’s employment with LLC was terminated. She then negotiated a severance agreement with LLC that included a release of claims against the company and its current and former officers, directors, and board members. In exchange, LLC agreed to pay plaintiff six months’ salary. However, before all the payments were made, LLC filed for bankruptcy. After plaintiff made a claim for the unpaid amounts due under the severance agreement, the bankruptcy court granted LLC’s motion to reject the severance agreement based on LLC’s inability to pay. In total, plaintiff received $30,000 of $72,000 owed to her. Plaintiff nonetheless complied with the terms of the non-competition agreement.

Then, plaintiff filed suit against defendants, alleging sex discrimination and retaliation in violation of the Elliot-Larsen Civil Rights Act, MCL 37.2101 et seq., and disability discrimination in violation of the Persons with Disabilities Civil Rights Act, MCL 37.1101 et seq. Defendants filed a motion for summary disposition under MCR 2.116(C)(7), arguing that plaintiff’s claims were barred by prior release and that plaintiff would have to tender back all consideration she received under the severance agreement before her suit could continue. The trial court agreed and granted defendants’ motion, rejecting plaintiff’s assertion that the $30,000 she had received was primarily consideration for the non-competition agreement and holding that plaintiff was required to tender back any consideration before filing her claim.

Plaintiff argues that the trial court erred by finding that she was required to adhere to the tender back rule before filing suit against defendants.

The “tender back rule” requires that a party may not file a lawsuit asserting previously released claims or repudiate a release unless the party first repays all consideration received in exchange for the release.

In this case, Plaintiff argues that the tender back rule does not apply to her because defendants failed to cite any authority directly addressing the application of the tender back rule to a complex severance agreement or to situations in which the opposing party fails to pay the full consideration.

However, our Supreme Court held that a plaintiff must, in all cases where a legal claim is raised in contravention of an agreement, tender the consideration recited in the agreement prior to or simultaneously with the filing of the suit. Plaintiff’s lawsuit is undoubtedly a legal claim raised in contravention of an agreement, and our Supreme Court’s holding is binding.

If you are a business owner facing litigation, obtaining the right legal representation is essential.

From our law firm in Plymouth, Michigan, we represent business owners throughout Wayne County and the surrounding region who need help with:

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  • Shareholder disputes
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  • Ownership disputes
  • Membership disputes
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As a small-business owner, you have enough on your plate without having to worry about complex litigation in today's litigious environment. Our attorneys can give you much-needed peace of mind while you focus on growing your company.

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