From time to time, employers are faced with a quandary: When an employee has not been following the rules, do I fire the employee straight up? Or do I give the employee an opportunity to resign first, and potentially sign a settlement agreement?
Why might an employer do that? Well, it allows the employee to save face and to say, honestly, to a potential employer that he/she left, rather than fired. That also allows the employee to find new work quicker than having to explain that he/she was fired for violating company rules or at least suspected of such violations.
But suppose an employer did so and then asked the employee to sign a release of claims (and potentially even offered some money to settle any potential claims the employee may have). Is that agreement — which is under the veil that the employee will be fired if he/she doesn’t sign — signed under "undue influence" and thus void?
The Connecticut Appellate Court, in Gengaro v. City of New Haven (officially released on December 29, 2009), said no. The court held that even though the employee may have had financial or medical issues, the "pressure" to settle did not rise to the level of "undue influence."
The Connecticut Business Litigation Blog discusses the legal specifics of the element in good detail this morning so I won’t repeat it here. If you’re interested in the background of "undue influence", it’s worth a look.
Takeaway for Employers
The case is good reminder to employers of the old expression, "It ain’t over, ’til its over". Even after an agreement is signed, there is still a risk of attack.
So what’s an employer to do?
1) Draft the agreement in plain language that spells out exactly what the employee is agreeing to.
2) Provide the employee with a reasonable amount of time to consider it.
3) If there are age discrimination claims that are being waived, don’t forget about the obligations of the Older Workers Benefit Protection Act.
4) Consider adding a specific reference in the agreement that the employee understands the provisions of the agreement and represents that he/she is signing it off their own free will.
But most of all, have legal counsel help draft and review it. Settlement agreements are an opportunity to resolve a matter once and for all; you don’t want legal loopholes or drafting errors to allow a matter to be reopened that should otherwise be closed.