There’s been a lot in the news of late about “outrageous” provisions found in an separation agreement between an employer and an employee, like confidentiality.  Indeed, some proposed legislation would restrict the use of some provisions.  

So I thought it would be helpful to go over what we typically see in a separation agreement.

First a big caveat: My description of a “typical” agreement does not mean that these provisions are in every agreement or even that these provisions ought to be in some agreements. Each separation or settlement has differing facts that may make certain provisions more important than others. And some employers or employees negotiate differently.

In other words, there is not a one-size-fits-all to this and employers should definitely not attempt to do this without legal guidance.

One more caveat, back in 2009, I provided a link to a great checklist that existed at the time about key provisions to have in a separation agreement. Nearly 10 years later, it still holds up pretty well.  You could do a lot worse than rely on that.

So what are typical provisions?

  1.  Last Day of Employment
  2. Benefits Upon Separation of Employment
  3. A Release of all possible claims related to employment (maybe even broader) with lots of legalese
  4. Confidentiality of Agreement
  5. Nondisparagement of one or more of the parties
  6. No Admission of Liability
  7. No Obligation by Employer to Re-Hire
  8. Return of Property
  9. Affirmation of Any Prior Restrictive Covenants (such as Non-Compete periods)
  10. References or Removal of Negative Information from Personnel File
  11. Many more technical provisions regarding what the governing law is, indemnification in case of breach, incorporation provisions making sure this agreement supersedes prior agreements, and, OWBPA-compliant provisions if necessary.

So, before you read headlines or “expert” commentary expressing shock that a separation agreement contains a confidentiality provision, understand that typically these are sought by both an employer and employee.  There may be good reasons that both have for wanting to keep the reasons for the separation and any separation agreement private.

The Dialogue – an occasional discussion between myself and a prominent employee-side attorney, Nina Pirrotti returns today after a late summer hiatus. Today’s chat focuses on employee separations and severance agreements.  Share your own tips or observations in the comments below. As always, my thanks to Nina for sharing her insights here.

Dan: Hi Nina! How was your summer? Mine was fine except I can’t stop hearing news about President Trump.

It seems to drown out everything else going on and I think I have a headache from it all. But let’s give it a try, shall we?

I know I’m often confronted with having to fashion separation and settlement agreements for employers.   

What do you find are the items in agreements that you think both sides ought to be paying attention to?

Nina: Drowning in Trump-related noise.  The image is horrifying!  My husband and I were chatting the other day about an old Saturday night live weekend update skit.  As we recall it (it was decades ago), the news media was focused on other events when all of a sudden the character playing Kim Jong Un pops into the screen, holds both arms out and complains:  “What do I have to do to get attention around here?!” 

In the age of Trump that glib remark becomes bone-chilling. 

The art of crafting a fair and balanced settlement agreement isn’t the most riveting of topics in our world but it is among the most important.  

One key strategy I use in evaluating them is to put myself in the position of the employer to ensure I understand company’s (reasonable) priorities. 

Clearly the company seeks to contain the dispute itself, keep the fact that it is settling it confidential, and do everything possible to obtain closure.    If the settlement terms go beyond meeting those priorities, a red flag goes up for me and I scrutinize those terms closely.  

In light of the company’s priorities in containing the dispute and keeping it confidential, I expect to see a confidentiality provision, limiting the disclosure of the settlement agreement to those on a need to know basis (typically immediate family members, financial/tax advisor and lawyer). 

I am also not surprised by a non-disparagement provision which prevents the employee from spreading ill will about the former employer. 

Since I generally advise my client that it rarely reflects well on an employee to speak negatively about his/her former employer (no matter how justified the employee might be in doing so) I usually do not oppose such provisions. 

I will often, of course, make them mutual so that key employees at the company also commit to not disparaging my client. 

In light of the company’s priority in seeking closure, I do not have a one-size fits all response to no re-hire provision.  I understand the company’s concern that should the employee who has settled claims for discrimination apply for a position down the road and the company (for legitimate reasons) declines to hire that employee, it nonetheless remains exposed to a potential retaliation lawsuit by the employee. 

No re-rehire provisions in certain situations can be appropriate but only if they are narrowly tailored to the company itself.  Alarm bells go off for me, therefore, if the employer is large and has numerous affiliates and subsidiaries and the employer insists on including them within the scope of the no-rehire provision. 

In such cases, no-rehire provisions can be tantamount to mini-restrictive covenants and, where they hamper my client’s ability to find comparable work, I will reject them as untenable. 

Speaking of restrictive covenant  provisions, it irks me to no end when an employer tries to slip one into a settlement agreement where the employer was not bound by one during the course of his/her employment!   Such provisions are generally a non-starter for me, absent considerable additional compensation for them. 

Finally, as we discussed in an interview you conducted with me many years ago, I do not abide by liquidated damages provisions. 

If a court determines that my client has breached the agreement, even if that breach is deemed a material one, the employer should still bear the burden of proving that it has been damaged and, to a reasonable degree of certainty, the monetary amount of that damage. 

What are your thoughts, Dan?   Have I articulated the company’s main priorities well?  Are there others I am missing that I should consider the next go-round?   Do tell and I promise to listen with an open mind!

Dan: Well, one day we could talk about Trump-related employment litigation, if you’d like to really talk more about Trump.

You’ve hit on some of the highlights from an employer perspective. When crafting one for an employer, I will let you in on a “secret” – we have a template.

I know — probably not a big surprise to you since our firms have negotiated enough of them.

As a result, I find that agreements at this point are sometimes more of finessing around the edges, rather than major re-writes.

The problem I see is that there are some employers who are using a form separation agreement handed down to them years ago, without understanding what’s in them.

First off, the agreements — regardless of whether you’re trying to comply with federal law or not — should really be written in “plain English”.

Get rid of the “Whereas” clauses.

Use bold language or simply to understand provisions.

And try not to have it be 15 pages.

Second, the agreements should contain: a) a release of all state and federal claims (and local ones if you’re in places like New York City); b) confidentiality (and if it needs to be mutual, so be it); c) non-disparagement (same).  There’s more of course, but start with the basics.

Third, employers should think about provisions that may actually be helpful: a) What are you going to do about references? Is it “name, rank, serial number” or something more? b) Do you want an arbitration provision for any breach of the separation agreement?

Neither is typically a high priority but taking care of some of these details are important.

A few employers are trying to get the “best” deal and negotiate strongly but I find most employers just want to move on; the termination was probably not something that they wanted to do anyways and putting some distance between the employee and the company is probably a good thing for the business ultimately.

Since you’re not finding separation agreements all that exciting, what about how employers handle the termination or termination meeting itself? I’m sure you’ve heard some stories from clients.

Nina: Wow – you hit the jackpot with that question!   

I was once asked at an ABA conference at which I spoke what was one step management lawyers could take to maximize the chances that a departing employee won’t seek out the counsel of someone like yours truly. 

My answer?  Treat them like human beings when you terminate them.   

Don’t do what one Fortune 500 company did to one of my clients which was to call her as she lay in a hospital bed with her infant daughter who had been born earlier that day and inform her that she need not return to work because her job had been eliminated.

Time and again prospective clients had told me that they would have gone quietly into the good night had their employers treated them with a modicum of respect during the termination process. 

I recently settled a case involving a woman in her mid-60s who had worked for the same company for 20 years and proven time and again that she would do ANYTHING for that company and, indeed, had worn a number of hats over the years, shedding one and donning another as the company’s needs shifted.  In her 20th year, a new CEO was hired and you can guess what happened next.  He terminated her and replaced her with a brand new hire, decades younger, who my client had helped train.   

Doesn’t sound kosher right, but that is not the worst part! 

It was the WAY the company terminated her that prompted this lovely, meek, non-confrontational woman to summon up the courage to pick up the phone and call me. 

Her termination consisted of a three minute meeting in which the CEO informed her she was no longer needed and handed her a severance agreement that provided her with two measly weeks’ pay. 

She was literally sobbing as she signed it then and there after which she was immediately escorted out the door.   She contacted me weeks after she signed her agreement.  Too bad, so sad, right?  Wrong. 

The employer neglected to include in her severance agreement language required by the Older Worker Benefits Protection Act (OWBPA), including a 21-day period to consider the agreement and a seven-day revocation period.  She was able to keep her paltry two weeks and I got her many months more on top of that!   

There are so many morals to that story, the least of which is that severance agreements for employees over 40 should comply with the OWBPA.   Employers should be expressing their gratitude to terminated employees who have proven their devotion to the company by providing them with severance that sends the message that they valued that devotion.  

There other ways to go that extra mile to treat such employees with dignity.   Think about how you would want to be treated if you were undergoing one of the worst days of your life and act accordingly.  Thank them for their service, tell them how sorry you are, assure them that you will do everything in your power to facilitate their transition, allow them to say goodbye to their colleagues, hell, even offer to throw them a farewell gathering.  The possibilities are endless.  Sometimes we lawyers get in our own way. 

Dan, I know none of the clients who have had the benefit of your wisdom prior to terminating an employee would succumb to such pitfalls.  But what do you do when you have to clean up after the fact?

Dan: You’ve raised a good question, but I want to address something you said first. 

You said: “Employers should be expressing their gratitude to terminated employees who have proven their devotion to the company by providing them with severance that sends the message that they valued that devotion.”  

It’s that phrase that I think gets to the heart of the issues with severance in 2017. 

When I first started practicing (a few years ago, ahem), there were still many companies that offered severance without ANY release because that just seemed “the right thing to do.”

After all, there was still a bit of an unspoken contract that employers would take care of employees.

Think back to the “Mother Aetna” description of the insurance company.  But as the recessions took their toll and employee mobility took root, that social contract has definitely been frayed over the years.  In part too is the rise of employment litigation. 

Now each employer has to worry: Is THIS going to be the employment termination that leads to a lawsuit?

 I can’t even remember the last time that an employer offered severance without also demanding the employee sign a release. 

In other words, the idea of severance as “gratitude” and “thanks”, has now been replaced with much more of a quid pro quo. 

For employers, the thought ii: If we give you this severance, please don’t sue us. 

And yet for employees, some of them still remember the days when severance was just something companies did without worrying about the lawsuit. And so when the employer demands the release, some employees take offense to it, not realizing that times have changed. 

As a result, I have also seen employers trying to offer less and less; the notion of one week of severance per year of service (with caps) is still strong, but not universal. 

As to being the fixer – yes, sometimes it happens.  The lack of OWBPA provisions is really something that just shouldn’t happen anymore. 

But it’s more that employers go ahead with the termination without thinking about what comes next.  And some employers are moving so fast, that the details such as having two people in the termination meting and having COBRA information available, get lost in the shuffle.

I don’t know of a single employer that has enjoyed firing an employee.  

Even when they catch an employee red-handed, many employers are aware of the consequences that may flow for the employee from a firing. The employee may have a tough time finding a new job, for example. 

But it strikes me that a small subset of terminated employees are LOOKING to bring suit or a payday instead of looking forward to a new time in their life. 

Obviously sometimes past discrimination has to be examined, but what do you think makes employees sue their employers instead of signing severance agreements that are presented to them?

Nina: I think that employer conduct that rises to the level of actionable discrimination and/or retaliation is alive and well, unfortunately. 

The only up side of all of this is that I get to keep my day job, which I love! 

Of course there are those (“small subset” would accurately describe them) who seek to avoid accountability and are looking for a quick pay out of claims. 

Virtually all of those individuals never make it to our front door. 

I say “virtually” because we are human, after all, and one or two may sneak through the cracks in that door. 

But then we have competent lawyers like you for whom we have great respect who (very politely) convince us – – with facts – – that we are being misled. 

That is why I believe that the only situations in which early negotiations are successful are those in which both sides fight their natural inclinations to hold their cards close to their chests and actually share meaningful information from the get go.  

But how to conduct negotiations effectively is a topic worthy of its own separate dialogue, no?

Dan: I think so. Now, I have to save whatever energy I have left to stay up late to watch playoff baseball with the Yankees. Hopefully, it’s a long October filled with lots of late nights and distractions.  Until next time, Nina!  

So, a couple of months back, I talked about how separation agreements for small employers might not be covered by the federal law that covers such agreements.

After all, since the Age Discrimination in Employment Act only applied to employers that have 20 or more employees, the requirements for a “knowing and voluntary waiver” of claims under separation agreements only applied to those larger employers.

Because this is a federal law, it applies in Connecticut though states are free to craft additional laws if they wish.

Recently, though, I’ve heard of an employee spouting off about “advice” he received that  Connecticut state law had the same requirements as federal law did.

And since Connecticut’s anti-discrimination laws apply to employers of 3 or more employees, the employee argued that he should be provided with 21 days to consider the agreement.

When I heard this, I scratched my, well, proverbial head about this one.  Did I miss something?

The short answer is no, I didn’t miss something.  Connecticut law doesn’t say this.  You can see for yourself in Conn. Gen. Stat. 46a-60.

But how did the employee get such advice?

The first answer may be the simplest one: The attorney he spoke with doesn’t routinely practice in the area.  Sometimes, well-meaning lawyers just overstep their knowledge basis.

Another obvious answer is that the employee’s so-called advice was from “Attorney” Google.  Google is really good at finding things that might apply to your situation — not as good yet at telling you whether it actually applies to your situation.

And if you Google a topic like this, you might actually find a state court decision that looks — at first blush — like it might be on point.

State courts often use the following language in their decisions:

Although this case is based solely on Connecticut law, we review federal precedent concerning employment discrimination for guidance in enforcing our own antidiscrimination statutes.

What does THAT mean?

Typically for the same types of disparate treatment claims for, say, gender discrimination claims, courts in Connecticut don’t have as much as experience as federal law. So where the law is the SAME, it makes sense to look to federal laws that are similar.

The problem in the age discrimination statute context is that Connecticut law is DIFFERENT than federal law at times. There is no state equivalent. So looking to federal law makes no sense whatsoever.  And sure enough a quick search of Google Scholar reveals NO state law case applying that federal law to a review of separation agreements.

So how ARE separation agreements to be reviewed in Connecticut? In essence, you would most likely look at the agreement under state laws dealing with contracts.  Typically, this is also done through the “common law’ – that is precedent from the courts.  And Connecticut courts haven’t said much about separation agreements.

Employers are sometimes caught in the middle of receiving advice from their counsel (hopefully correct) and what the employee believes is true whether through an attorney or otherwise.  Employers should understand the misinformation that exists out there and, when confronted with these issues, try to explain them to employees.

Otherwise, a seemingly innocuous situation could turn much more stressful when the employee thinks (and worse, is being told) that the employer is violating a non-existent state law.

Before I even begin this post, let me advance the disclaimer right off the bat: Despite the title of this post, there is no sure-fire way to fire an employee without getting sued.

Indeed, the title is a bit of a misnomer.  It’s often been paraphrased that anyone can sue anyone else for anything at any time in any court. While that’s not quite true, it’s not that far off the mark either.

There ARE, however, ways to fire an employee that can reduce or, in some ways, eliminate the likelihood of being sued.

In fact, I had been working on a draft of this post for sometime thinking of how I could help others make the process of firing a bit more humane.  I’ve had many discussions with clients over the years about how firing an employee is one of the toughest things that they’ve had to do as a “boss”. fire

Yes, firing is part of the job, but I’ve yet to meet an employer that has enjoyed it. Inevitably, there is a sigh of relief when the termination meeting is over.

(And to be sure, the impact on the employee is almost always worse.  There are few things worse in life than being fired, even if it ends up leading to good things later.)

Of course, before I could finish my draft post, Jon Hyman alerted me to an excellent post by the Harvard Business Review entitled “A Step-by-Step Guide to Firing Someone.”

It’s really well done and I encourage you to read that first before finishing this post up.

Among the overall tips:

  • Start by creating a transition plan
  • Take the termination meeting itself step-by-step
  • Avoid misdirected compassion

The discussion in the article about the termination meeting itself is particularly insightful.

Here are three more things to think about too:

  1. Ask yourself: “Is the Termination Decision Fair?”  Sometimes, I rephrase this question into the following: “If you were telling your neighbor about the firing, what would he or she think about it?”  But it all comes done to the same point: Would a third person (or a jury) think the process you used to fire an employee was a fair and just decision?

    For performance-related terminations, you may look to whether the employee had been put on notice that his or her performance was faulty and given an opportunity to improve.

    For reorganizations or reductions-in-force, ask whether the process you are using to select employees (whether it’s seniority, overall performance, or other legitimate factors) is explainable and non-discriminatory.

  2. Consider A Separation Agreement: When I first started practicing law, separation agreements were the exception. Now they are the rule.

    If you’re firing someone and you want to avoid being sued, consider a separation agreement where you offer some severance in exchange for a release.  Of course, I’ve been talking about this since way back in 2008 – so this isn’t something new. But do yourself a favor: Use an agreement that complies with the law.

  3. Know the Difference Between “It’s Legal” and “It’s a Good Idea”: Over the years, I’ve had more clients ask me whether a proposed firing was “legal”.  But as I’ve said in the past, just because something is “legal” doesn’t mean it is a good idea.  For example, it may be “legal” to fire an employee by e-mail, but it may result in hurt feelings and the idea by the employee that the employer doesn’t value the employee as a human being.

    So, when you’re seeking legal advice on a termination, be sure you’re asking the right questions and getting the best advice from your counselor about the termination itself.

There are, of course, many more aspects to a firing than just this. But if you follow a few of these items, it can help reduce the risk of a lawsuit.

As I keep trying new things for the blog, today I introduce an “explainer” video.  You’ve seen them before; it’s a short movie explaining a subject.

Today’s topic is one I’ve touched on from time to time — separation agreements that comply with the Older Workers Benefit Protection Act.

Let me know what you think of videos like this.

Back in February, I talked about how a lawsuit brought by the EEOC against CVS challenging the company’s standard separation agreement could be a big deal “if the EEOC prevails”.

But I cautioned about drawing any sweeping conclusions just then stating: “My gut tells me that the courts are not likely to view the government’s arguments with favor. The arguments just seem too ‘out there’.”

It’s fun to say, “I told you so” every once in a while, which is why the news from late Friday brought a smile to my face.

A federal judge in Illinois dismissed the government’s lawsuit during a status conference last week and indicated that his decision would be forthcoming.

So, right now, we don’t quite know all the logic behind it, but suffice to say that employers who were concerned that they would have to rewrite all of their agreements, should breathe a little easier today.

Of course, it’s quite possible (probable?) that the EEOC will appeal the ruling and it’s not clear whether the EEOC will continue to push this aggressive line of arguments in other cases as well.

My good friend, Jon Hyman of the Ohio Employer’s Law Blog, probably said it best this morning:

I try to shy away from hyperbole, but OH MY GOD, THIS CASE COULD BE RUINOUS!!!

Yeah, pretty much.

Is the sky falling?

So, if you — like me — have been tied up with day-to-day affairs for a bit, or thinking how tomorrow’s snowstorm is going to put you over the edge, you might have missed the news of a lawsuit brought by EEOC against CVS.In it, the EEOC has challenged a bunch of garden-variety provisions that are being used in nearly every separation agreement in this country, I suspect.  Just look at some severance agreements that are publicly available and you’ll see some of the biggest companies using these same agreements with their executives.

Jon does a nice job recapping the provisions that are at issue (such as confidentiality and nondisparagement) so I’m not going to repeat them here, but if the EEOC prevails, it would turn this area of law on its head.

And that’s the key fact: IF the EEOC prevails.  My gut tells me that the courts are not likely to view the government’s arguments with favor.  The arguments just seem too “out there.” But that’s why we have the legal system — to test arguments like these.

But for employers, that is of little solace.

There are, however, some potential stopgap measures. In some agreements now, there is a carveout that says, in effect, nothing in this agreement prohibits employees from engaging in conduct with the EEOC and such conduct won’t constitute a breach of the agreement.  Jon suggests some language.

There are two other potential ideas that can be considered as well:

  1. First, employers could consider a “severability” clause that says that to the extent that any provision is found to be overbroad or illegal, it shall not affect the enforceability of the rest of the agreement.
  2. Second, employers could borrow the idea of a “blue pencil” from the area of restrictive covenants and empower the court to “revise” any provision that is overbroad to make it fit within the contours of the law.

None of these solutions is perfect and again, it is far from clear whether this lawsuit will find any favor in the courts anyways.

For now, employers will be left to wonder if the agreements that they have relied on to end lawsuits may ultimately survive an even bigger lawsuit.

Throw out the release?

The situation is a common one.

  • Employer terminates the employment of an employee.
  • Employer provides a severance agreement with its signature already affixed. 
  • Employee signs it and returns the agreement to the employer.
  • Employer, likely reviewing just the signature, pays the severance.

But here’s where things get interesting. Employee then sues the employer for discrimination. Employer says, “wait a minute”, the employee already signed a release.

Except the employee has the equivalent of baseball’s hidden ball trick up her sleeve.

Before the employee signed the agreement, she re-typed the entire page with the general release using the same font and margins. (You can download the agreement here.)

And, most importantly, she changed the word “including” (when referring to specific claims she was releasing) to “excluding” (thereby trying to exclude the laundry list of claims that typically follows an “including” clause).

She signed the agreement and returned it to the employer.  (There is some dispute as to whether the employee attached a yellow sticky note to the change.)

Those facts are described in a remarkable new case out of a federal district court and were first reported in the Employment Law Daily briefing

The employer argued that the employee, under either version of the release, had settled “all claims” against the employer. The court raised its own issue suggesing that the waiver was not knowing or voluntary — at least at this stage of the litigation.

Here, by changing the word “including” to “excluding” prior to the list of claims covered by the Chanel Separation and Release Agreement before signing the agreement and returning it to Defendant, Plaintiff manifested an intent to preserve her right to file a discrimination claim. Thus, Plaintiff did not knowingly, willfully, and voluntarily waive her right to file a discrimination claim, regardless of whether the Chanel Separation Release Agreement, Plaintiff’s Release, or neither represents the agreement of the parties.

The case will proceed with discovery now and it remains to be seen whether there will be additional facts gleaned during the case that could change the court’s analysis.

Regardless, the decision is a stark reminder to employers that things may not always be what they seem and that, unfortunately, it is up to the employer to police the agreements.  

When a severance agreement is returned to the employer, the case now emphasizes a need for employers to make sure that what was signed was actually the version that was sent to the employer in the first place.  

I tend to disagree with the court’s decision that a party should profit from such trickery but the court — at least in this case — refused to come down harshly on the employee.

Ultimately, it’s a scary decision for employers — particularly those that may process dozens of such agreements during a reduction in force.

As this blog has grown over the last few years, I’ve noticed that some readers have missed earlier articles on relevant topics.  Indeed, sometimes they ask why I haven’t written about it before when, in fact, I have. 

Rather than write the same post again, I thought it would be useful, from time to time, to look back at some of those posts for guidance.

Back in May 2008, I discussed how employers should develop a checklist for their separation agreements.  Importantly, there is a law called the Older Workers Benefit Protection Act that is still unfamiliar to many employers.  Check it out and make sure your agreements meet the requirements. 

Earlier this month, I posted on a bill pending before the Connecticut General Assembly that would have changed the statute of limitations for filing employment discrimination claims and allowed a Complainant to ask for a release of jurisdiction of the CHRO as soon as possible.

This week, the Labor & Public Employee Committee approved of the bill — with some significant differences than the original bill. 

H.B. 5206 now gives an person who complains to the CHRO the right to opt out of the process any time. The CHRO mutst provide the release within 10 days unless the case has been certified for a public hearing.  The CHRO can defer on the request for 30 days "if the executive director…certifies that he has reason to believe that the complaint may be resolved within that period."

You can view the substitute bill here and the joint favorable report here. 

The bill now moves on to the Judiciary Committee.

(My thanks to my partner Joshua Hawks-Ladds, for his background on this post.)