Federal Court Finds Settlement Negotiations Can be Used in Litigation and Retaliation Could Have Occurred After the Employment Relationship Ended

December 27, 2023

By: Stephen B. Stern

     In Cafarella v. Massachusetts Institute of Technology, Civil Action No. 1:23-cv-11032-IT, 2023 U.S. Dist. LEXIS 196779 (D. Mass. Nov. 2, 2023), the United States District Court for the District of Massachusetts found settlement negotiations between the parties that did not result in a resolution could be used in the litigation and the employer could have engaged in retaliation after the employment relationship ended.

     In Cafarella, Massachusetts Institute of Technology (“MIT”) terminated the employment of Thomas Cafarella on February 4, 2022 due to what MIT described as “a lack of work resulting in the elimination of [Cafarella’s] position.”  Cafarella, however, believed there was sufficient work to maintain his position.  Cafarella also was aware of several open positions in his department at the time his employment was ended which he believed he was qualified to perform, but none of those positions were offered to him.  At the time his employment was terminated on February 4, Cafarella had not been paid all the wages he had earned.  He notified MIT of its failure to pay all the wages he had earned, and he filed a complaint with the Attorney General’s Office as well as in district court under Massachusetts’ Wage Act to collect those wages.  Less than one month after Cafarella’s employment had been terminated, MIT posted a job vacancy that resembled the job Cafarella previously performed for MIT.  After seeing the job post, Cafarella withdrew his demand under the Wage Act and informed MIT he believed he was terminated due to age discrimination.  Cafarella and MIT discussed the newly posted position, and MIT ultimately concluded that Cafarella “was [not] suited for the role[,]” leading Cafarella not to apply for the position.  

     Cafarella and MIT nevertheless engaged in settlement discussions regarding Cafarella’s wage and discrimination claims, but those negotiations ultimately failed because MIT insisted that the agreement include a provision that would preclude Cafarella from future employment with MIT.  Although the settlement negotiations failed, MIT paid the full amount of wages Cafarella claimed he was owed and Cafarella dismissed his wage claim in district court.  Cafarella, however, filed a charge with the Massachusetts Commission Against Discrimination claiming age discrimination.

     In early 2023, Cafarella learned from a former MIT colleague that MIT was going to post a position that Cafarella was qualified to perform.  The position was never posted, however, because MIT filled the position before posting it.  Cafarella contended this was the first time in fifteen years MIT filled a position without posting it.

     Cafarella ultimately filed suit in state court in Massachusetts, which MIT removed to federal court, claiming age discrimination as well as retaliation for pursuing his wage claim and complaining about age discrimination.  MIT filed a motion to strike portions of the complaint that included statements made during settlement negotiations between Cafarella and MIT and it also filed a partial motion to dismiss the retaliation claim for failure to state a claim upon which relief can be granted.

     With respect to the motion to strike, MIT argued that certain allegations in the complaint were inadmissible under Rule 408 of the Federal Rules of Evidence and, therefore, they should be stricken from the complaint.  Rule 408 prohibits settlement offers or statements made during settlement negotiations from being introduced into evidence “to prove or disprove the validity or amount” of the claim.  Rule 408, however, allows such evidence to be admitted into evidence “for purposes other than to establish the claim’s validity or amount.”  To this end, courts have held that the prohibition under Rule 408 is inapplicable when the claim is based on some alleged wrong that occurred during the course of the settlement discussions and when a settlement offer may be used to show an “independent violation . . . unrelated to the underlying claim which was the subject of the correspondence.”  The court noted that motions to strike generally are disfavored because “they are a drastic remedy” and it proceeded to find that, although the statements at issue would not be admissible to substantiate Cafarella’s wage or age discrimination claim, “they may be relevant to showing an independent violation, namely [Cafarella’s] claims of a retaliatory failure to hire.”  As such, the motion to strike was denied.

     With respect to the partial motion to dismiss, MIT argued that the retaliation claims (Counts I, III, and V) failed to state claims upon which relief could be granted.  To state a retaliation claim, Cafarella had to allege (1) he engaged in protected activity, (2) he was subjected to an adverse employment action, and (3) a causal connection exists between the protected activity and the adverse employment action.  The court noted it was undisputed that Cafarella alleged he had engaged in protected activity by alleging he made complaints about his wage and discrimination claims.  The court then turned its attention to whether Cafarella alleged an adverse employment action.  It noted that an adverse employment action is one where an employee has been “materially disadvantaged ‘when objective aspects of the work environment are affected.’”  The court further noted that “aspects of the work environment” “may extend past the traditional boundaries of the workplace[,]” meaning that “retaliation claimants need not be current employees when the adverse employment action occurs.”  The court further explained that, at bottom, “the court’s concern is to ensure that employers do not act in such a way as to dissuade employees from filing complaints.”  As such an “adverse employment action” is one where “a reasonable employee would have found the challenged action materially adverse, ‘which in this context means it well might have dissuaded a reasonable worker from making or supporting a charge of discrimination.’”

     To allege a retaliatory refusal to rehire, the court explained that a plaintiff must allege (1) he applied for a vacant position, (2) he was qualified for the position, and (3) he was not hired for the position.  Generally, the absence of a job application precludes a plaintiff from establishing a failure to hire, but courts have recognized some exceptions, such as when “the facts of a particular case make an allegation of a specific application a quixotic requirement.”  In this case, the court found that although Cafarella did not apply for the vacant position, MIT “made it clear it did not believe [Cafarella] was suited for the role.”  Plus, Cafarella alleged that MIT altered its historical practice of not filling a position without posting it.  Under these circumstances, particularly where MIT knew that Cafarella was interested in the position, the court found that Cafarella alleged sufficient facts to state a claim for retaliatory failure to rehire.  The court then quickly dispensed with the casual connection element, finding Cafarella alleged sufficient facts and it denied the partial motion to dismiss.

     While the court’s decision in Cafarella did not establish any new law, the court’s decision provides two important reminders – one for litigants generally and the other for employers when it comes to trying to avoid retaliation claims.  

     First, with respect to settlement negotiations, many attorneys and parties operate under the mistaken impression that everything that transpires during settlement negotiations remains confidential pursuant to Rule 408 of the Federal Rules of Evidence.  That is not true, as illustrated by the court’s decision in Cafarella.  Parties and their counsel still need to be strategic about what and how matters are disclosed during settlement discussions, as a failed settlement negotiation can later come back and undermine the party’s claim or defense.  

     Second with respect to retaliation claims, again, the court’s decision is nothing new in that it is well established that failure to rehire or taking other adverse actions after the employment relationship ends can result in retaliation claims and liability.  The facts in this case, however, illustrate a common error that companies make when terminating an employee based on the “elimination of the employee’s position.”  In Cafarella, shortly after Cafarella’s position was “eliminated” and again less than a year after it was “eliminated,” MIT posted positions (or was about to post a position the second time) that closely resembled the position it claimed to have eliminated.  Such actions can invite discrimination claims (as it did in Cafarella) and a court finding pretext.  Thus, it is important to make sure a position elimination is a true position elimination and not a temporary fix to move on from an employee where the company looks to fill the position (or one very similar to it) shortly thereafter.