Litigation Lens: PIPs Under the Microscope—Adverse Action or Management Tool?

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Michael Nail: Ogletree podcast listeners, Michael Nail, back at you again. I’m a litigator in Ogletree’s Greenville, South Carolina office, and I’m hosting another episode of Litigation Lens, where our Ogletree attorneys will bring the law to life with recent noteworthy employment law cases coupled with practical takeaways. As you know, on Litigation Lens, you’ll hear about real cases with real outcomes analyzed by Ogletree lawyers in various offices and numerous practice areas. Today you have the privilege of listening to an episode focused on a recent decision by the United States Court of Appeals for the First Circuit, which sheds light on whether placing an employee on a performance improvement plan, or PIP, as you will hear us call it, constitutes an adverse action. With me again today is Sarah Zucco, a shareholder in our New York City office. Sarah, how are you doing today?

Sarah Zucco: I’m doing good. How are you?

Michael Nail: Good, good. Well, I might as well call you a co-host at this point. I think we’ve done about four or five of these together. I think we make a good team, so I’m glad to have you back with me today. As I typically do, I’m going to start by giving the listeners some basic facts, some groundwork about the case. Then I’ll turn it over to you, and we’ll both discuss some of the court’s reasoning and takeaways.

To set the stage a little bit, I want to remind the listeners about the Muldrow v. City of St. Louis case. This is a 2024 Supreme Court in the United States case that unanimously ruled that employees challenging job transfers under Title VII need only show “some harm” regarding employment terms, not significant harm. Specifically, the court held that an adverse action is any employment event regardless of its severity, in which an employer’s conduct leaves an employee worse off with respect to the terms or conditions of their employment. Since then, lower courts have wrestled with what it means to show some harm in the context of the Muldrow case.

So, the First Circuit case that we’re going to talk about today is Walsh v. HNTB Corporation, and the First Circuit weighed in on this issue as it relates to a PIP. So, a few more caveats before we get started. First, it’s important to remember the elements generally of a prima facie case of age discrimination. This was an age discrimination case. Muldrow, on the other hand, was Title VII, but both of these standards, Title VII and under the ADEA and state law equivalents, are generally considered the same. Generally, again, we’re dealing with the First Circuit case, but this is pretty consistent across the board in most jurisdictions, a plaintiff must demonstrate that he or she was 40 year older, that his or her performance met the employer’s legitimate expectations, and the last element, which we’re going to focus on today, is whether the employee suffered an adverse employment action because of age.

In this case, a former employee sued an architectural design firm for age discrimination and constructive discharge after it placed her on a PIP. So, what happened leading up to the lawsuit? Well, after a performance review cited some concerns, the company placed this employee on a PIP in 2019, which she successfully completed. She later resigned in 2020 at the age of 55 and sued for age discrimination and constructive discharge. This particular PIP that the company provided to the employee in 2019 stated that there was recent feedback from office staff and leadership that she made it difficult to get things done and was perceived to be an impediment to the success and performance of the office. The PIP lasted three months and provided a list of necessary performance improvements that correlated to some of these criticisms.

At some point during the PIP, the employee said that her supervisor told her that she could be “replaced with younger, cheaper people” and that the company was “not getting its return on investment” with her. Now, after the PIP, the employee felt that her working conditions declined such as her supervisor treating her less favorably, taking credit for things that she had actually done, failing to delegate responsibilities appropriately, and interfering with her communications with colleagues. However, between the end of the PIP and her resignation, the employee never complained to HR and never submitted a complaint to the company’s hotline system about being mistreated by her supervisor or anyone else for that matter. The employee was never demoted. Her compensation was never reduced. No one asked her to leave her employment. But in September of 2020, approximately 10 months after she completed the PIP, she resigned.

So, what did the court do? Well, the First Circuit found that the facts of the case did not meet the standard for an adverse employment action established with the Supreme Court’s decision in Muldrow. Ultimately, the court agreed with the district court’s ruling that plaintiff’s successful completion of the PIP, the absence of demotion or pay reduction, and the lack of substantial changes to her job duties meant she did not suffer an adverse employment action. Specifically, the court recognized that while a PIP may be an adverse employment action, if it negatively impacts the terms and conditions of employment, the mere fact of a PIP is not enough. Additionally, the court concluded that the comments and actions by her supervisors did not create intolerable working conditions that would force a reasonable person to resign.

So, the important takeaway here that we’re going to talk about, and I’m going to turn it over to Sarah, is when may a PIP qualify as an adverse action? Sarah, why don’t you tell us what the court signaled to employers here about what could constitute an adverse action in relation to a PIP, even though the court didn’t find an adverse action here?

Sarah Zucco: Sure. Here, the court stated that when an employer issues a PIP to warn an employee about performance deficiencies or to assist the employee in developing a plan to achieve identified opportunities for skill development, in those cases, a PIP would not be an adverse employment action. However, the court also stated that when a PIP imposes new job responsibilities, changes the present terms or employment, or even deprives an employee of potential advancement opportunities, in these situations, a PIP may serve as an adverse employment action. In other words, as the court recognized, there’s a no-one-size-fits-all approach, rather it’s a fact-intensive and PIP-specific inquiry.

Here, after examining the particulars of the employee’s PIP in this case, the court ruled that the PIP did not constitute an adverse employment action because first, its purpose was to provide this employee with an opportunity to correct her unsatisfactory performance. For instance, the PIP identified several problem areas and provided a corresponding list of ways for this employee to improve. Some examples of this are that the PIP noted the employee should be more proactive and act as an advocate for the office that this employee supported. The PIP also stated that she should clean her office. Importantly, this PIP did not attempt to assign new duties to the employee. It did not alter her compensation. It also did not limit her ability to see other opportunities within the company.

Rather, here, its only reference to a term of employment was the company’s reservation of its right to terminate the employee’s employment before the end of the plan. The court noted that this reference is irrelevant since the employee does not dispute that she was an at-will employee. An at-will employee is one that an employee’s employment can be terminated at any time by either party without the need for a reason. Here, the court found that the PIP was essentially nothing more than documented counseling. The court also noted that even if this employee was able to show that PIP was motivated by age bias for argument’s sake, the employee, as Michael mentioned, referenced some comments that were made during the PIP period regarding her age, she still can’t show the PIP altered the terms and conditions of her employment.

Michael Nail: Yeah. And that’s really important to keep in mind and something that I was interested in when I was reading the case because I was thinking to myself, “Well, what if she can prove, at least at the summary judgment stage, that there’s enough evidence there that she was issued the PIP because of her age?” But the court said that wasn’t enough because the final element in this particular instance was, suffered an adverse employment action because of age. So, there still has to be an adverse employment action. And that’s what the court found, is that regardless of whether it was motivated by any age bias, the PIP still didn’t constitute an adverse employment action in this case. And as Sarah pointed out, there’s certain situations where it could, but the court analyzed this particular PIP and said that it didn’t.

Sarah, I also mentioned something to the listeners about the constructive discharge claim. Although the focus of this case and of this podcast is the PIP and whether that constitutes an adverse action, what did the court say about this constructive discharge claim?

Sarah Zucco: Yeah. Here, the employee also argues, in addition to that she believed the PIP constituted an adverse action, she also argues that she suffered an adverse action through a constructive discharge. So, the court here used the standard that most courts across the country use to evaluate a constructive discharge claim, which is whether the employee’s working conditions become so onerous, abusive, or unpleasant that a reasonable person in the employee’s position would have felt compelled to resign. Importantly, this standard is based on objective reasonableness. Additionally, an employee is not guaranteed a workplace free from the usual ebb and flow of power relations or interoffice politics, which is something that the court noted when evaluating these constructive discharge claims.

Here, the court noted that the alleged comments made by her supervisor during the PIP period that she could be replaced by a younger, cheaper people and that the company was not getting its return on investment with her were made at least 10 months before she resigned. So, the court determined, given the timing, this could not be a motivation for her resignation.

The court also viewed these comments that were made during the PIP period with conduct that occurred after the PIP. So even viewing all these comments and the conduct in the aggregate, the court still determined that many of these instances focused on subjective beliefs rather than objective facts to constitute a constructive discharge claim such as the employee here alleges that after the PIP, her supervisor was micromanaging her and not listening to her side of the story. The court found that this conduct is just subjective beliefs and not objective facts.

Michael Nail: It makes me think a little bit of a hostile work environment. What I’ll say to the listeners is that in my experience, I think most jurisdictions, it’s a higher standard even for a constructive discharge claim for a plaintiff to prove that as it is for a hostile work environment claim. So, this case also shows how difficult it is, even in light of those comments directly related to her age, to actually prove a constructive discharge claim.

Sarah Zucco: Correct. The court also determined the employee here alleges that she had apprehension about being fired. Again, the court said this is insufficient. There were no statements made by the employer that she would in fact be fired. In fact, here, the employee successfully completed the PIP, and no one asked her to leave the position. So, her apprehension that she would be terminated was not enough for the constructive discharge claim here.

Michael Nail: That’s a good point. What about some of the takeaways? I think really it’s important to understand from this decision what may constitute a PIP, and the court shed some light on that, but what are some takeaways from your perspective, Sarah?

Sarah Zucco: One takeaway here is that the distinction of whether issuing a PIP constitutes an adverse employment action, it’s really going to hinge on the working conditions and the specific details of the PIP. As the court did hear, it’s a very fact-specific inquiry looking at the actual contents of the PIP and what’s in that PIP.

Michael Nail: Okay.

Sarah Zucco: Another takeaway is, if the PIP results in a change in the terms and the conditions of the employment, such as reduced hours, reduced pay, loss of job responsibilities, or even undesirable assignments or locations, then it may be considered an adverse employment action. In this case, we didn’t have any of that, which is why the court found that there was no adverse employment action. But if you do have a change in the terms and conditions of employment, there may be a finding of an adverse action.

Michael Nail: Okay, great. I think in light of this case and in light of what you said too, employers may want to consider just being mindful of documenting the reasons for the PIP, implementing a PIP and using objective measures of performance in the PIP, and being consistent and fair in applying PIPs could reduce the risk. I certainly don’t think this case is going to open the floodgates of litigation if PIPs are issued, but it’s something that employers should be mindful of and employers should consider reviewing their PIPs and processes in light of this decision.

Also, in light of the court’s discussion about what may constitute adverse employment action as it relates to PIPs, employers may want to consider keeping pay and promotion decisions on separate tracks from PIPs. In other words, keeping PIPs focused on warning employees about performance deficiencies and assisting them with a plan to improve, and focusing on performance expectations as opposed to punishment like adding job responsibilities or ineligibility for certain roles, which could draw scrutiny in light of what the First Circuit said here.

So with that, we hope that was helpful for you, and we do have some other episodes coming down the pike that I think will be interesting for the listeners as well. But thank you for joining me today, Sarah, and I’m sure I’ll have you on another one soon.

Sarah Zucco: Thanks, Michael.

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