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!  

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.

Polo Ralph Lauren's agreement is online
Polo Ralph Lauren’s agreement is online

One of the little facts that’s not widely known is that the SEC typically publishes all sorts of executive employment agreements for publicly-traded companies.  They’re ready and available for download.

Why might the average person do that? Well, for one, these agreements can sometimes contain the latest and greatest “crowd-sourced” language for executive agreements.  For many companies, attorneys have pored over these types of documents making sure that little nuances get covered and don’t turn into big issues.

Let’s take, for example, a company that’s been in the headlines of late: Ralph Lauren.  The company just named a new CEO — Stefan Larsson — to take the reins of this organization.

But in doing so, the company also sent to the SEC the new employment agreement of Larsson.  You can download it here, free of charge.

It’s a fascinating read into what’s in these agreements nowadays. It contains, a multi-year guarantee of employment, compensation details, a relocation “package”, etc.

But it also provides insight into how one company will handle how the relationship ends. For example, it allows the company to terminate the employee “without cause” at any time.  In such a case, however, there is also a draft severance agreement that would kick in with the following provision:

[T]he Corporation shall: (a) beginning with the first payroll period following the fifty-second (52nd) day following the date of termination of Executive’s employment pay the Executive, in accordance with the Corporation’s normal payroll practice, a monthly amount equal to one-twelfth (1/12th) of 400% of Executive’s Base Compensation, as in effect immediately prior to such termination of employment (and without giving effect to any diminution that is the basis for the Executive to resign for Good Reason), for the two-year period commencing on the date of such termination (the “Severance Period”)….

If you’re wondering, 400% of his current salary is $6 million per year.  So, putting it all together: $12M severance payable over two years.  And that doesn’t include the other benefits, stock awards, etc.

There’s much more to the agreement, including a non-compete provision that prohibits Larsson from participating in a “business engaged in the designing, marketing or distribution of premium lifestyle products”.

Ken Adams, of Adams Drafting, has much more on retrieving such agreements. The easiest way is through a paid service, but with a bit of sleuthing, the agreements are free and can be used for both drafting ideas and concepts.

Just a quick followup today on a post from last month.

As I reported then, a District Court judge dismissed a closely-watched EEOC lawsuit against CVS challenging a pretty standard severance agreement.  But the grounds for the dismissal were unknown back then.

The wait is over; the written decision was released yesterday.  For those that were hoping that the court might shut this issue down, you will be disappointed because the court decided the case largely on procedural grounds.  The Court found that the EEOC had not exhausted its conciliatory efforts required by law.

Yawn.

And so, we’re back to where we were at the start of the year.  The EEOC is likely to continue to push this issue.

Still, I remain unconvinced by the merits of the EEOC’s arguments.  Courts have, for example, routinely upheld enforcement of severance agreements — albeit in different contexts.  But the arguments raised by the EEOC appear to be a stretch to me.

So, for now, employers should continue to stay alert on this issue but until we hear otherwise, it also seems that many will find it best to continue to use these agreements without further modification.

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.

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.) 

With the dog days of summer in full force here in Connecticut ("it’s the heat AND the humidity"), it seemed an appropriate time to roll out another installment of the "Quick Hits" feature to touch on a few items you might have missed over the last week or so:

  • One of the biggest stories that you’ll start hearing about is the lawsuit brought by the EEOC yesterday against AT&T in federal court alleging that the company’s no-hire policy for those employees who retired under an early retirement plan violated ADEA because it discriminated against older workers.  (The lawsuit itself is available here.) Ross Runkel’s blog does a pretty good job this morning  spelling out the details.  For companies that have similar policies, this is definitely an issue to keep a close eye on.
     
  • The Connecticut  Employee Rights Blog reported on a recent Illinois decision that held that a "release signed at termination which includes a waiver of the employee’s right to bring a collective action is enforceable and bars such an action."  reports.  Decisions like this might allow employers to breathe a sigh of relief that when employees sign releases, those releases will bring finality to certain claims.
     
  • For employers that offer severance pay, one of the issues that never gets talked about  with any detail is the tax implications of such severance pay. A recent article offers a suggestion to employers and employees to reduce FICA taxes by structuring some or all of these severance payments as supplemental unemployment benefit payments ("SUB-Pay").  Well worth a read if your company is struggling with how to deal with the tax issues associated with layoffs.
     
  • Without much fanfare, the EEOC has updated a portion of its Compliance Manual addressing the timeliness of filing pay discrimination claims in light of the Lilly Ledbetter Fair Pay. (You can view portions of the Compliance Manual here.) For employers who are wondering about when such claims can be brought (and when the statute of limitations might run), the Manual provides some useful examples.
     
  • And finally, there was a good article recently in Law.com that summarizes a lot of the same issues I discussed at last week’s webinar on social media and employment law.  Nothing revolutionary, but if you’re looking for a post that helps you spot some issues, it’s a pretty good start.

(Photo courtesy of MorgueFile)

The Connecticut Business and Industry Association takes a minute every day to share information that is relevant to businesses across the state. Of course, because that minute airs at 5:59 a.m. on WTIC-AM (1080), you may miss it from time to time.

Starting Monday, however, you’ll be able to listen to a series of interviews I did that have been taped for release this week on the CBIA’s "Business Minute".  They all discuss, in one way or another, how the economic stiuation affects employers. 

Among the topics that I discuss is severance agreements. Indeed, sometimes agreements seem to be somewhat foreign with legal requirements such as telling the employee of his or her right to consult with an attorney. (For a more detailed discussion of those requirements, see this blog post by D. Jill Pugh.) 

If 5:59 a.m. is still a bit early for you, the interviews will also be rebroadcast on several other Connecticut radio stations this week and available online here.

In a hearing earlier today, the Equal Employment Opportunity Commission discussed the "devastating impact" that age discrimination has on workplaces and employees.

For employers, however, the most notable item from the hearing was the release of new technical guidance regarding separation agreements and the waivers of age discrimination claims contained in such agreements.  You can access the EEOC’s new guidance here.

My initial glance at the guidance doesn’t reveal anything particularly revolutionary. After all, age discrimination waivers have long been covered by the Older Workers Benefit Protection Act. I’ve previously discussed these rules at length here.

The appendices are particularly helpful for those unfamiliar with the issues. In Appendix A, for employees, the guidance provides a checklist of issues an employee should review when his or her employer offers a severance agreement.

For employers, Appendix B will be helpful because it provides a sample release that an employer can use as the basis for a future separation agreement.

Either way, expect to hear more about this in the upcoming days.  I’ll post a further update, if necessary, upon my review of the new guidance in more detail.

Although I’ve been sounding the alarm bells for the last two months or so, on the new COBRA subsidy provisions, I’ve had informal discussions with various colleagues that suggest that some employers are either ignorant of the new rules or do not believe that the rules apply to them. Here are three areas why most employers in Connecticut need to be concerned.

1.     State Mini-COBRA Laws Will Piggyback on the New Federal COBRA Subsidy.  While federal COBRA only applies to employers withCourtesy Morgue File 20 or more employees, Connecticut has a parallel COBRA statute that applies to all other employers with group health plans (except those that self-insure).  Why is this important? Because the new federal COBRA subsidy provisions will ALSO apply to those employees who are covered under a state COBRA rule as well.

The rules are slightly different. For example, if the state mini-COBRA rules apply, the insurer is responsible for sending out notices to former employees who may be eligible for assistance.  In addition, the extended election period that, in essence, reopens the period for former employees to elect COBRA, does not apply for employers subject only to the state mini-COBRA.

Thus, for employers with less than 20 employees, you may still need to comply with the new COBRA subsidy provisions.

2.     There Are Significant Penalties for Failure to Provide Notices by April 18, 2009.  With the deadline to send out notices — particularly to former employees — coming up as early as Saturday, April 18, 2009 for many situation, employers who are scrambling to get the work done may be considering just postponing it.  However, any such postponement carries with it significant risks. 

Although the new law appears to be silent as to the exact penalties that will apply, it appears the standard penalties under COBRA or other federal laws may apply. Thus, plan sponsors (mostly likely, employers) who fail to provide the notice could be subject penalties of up to $110 per day under ERISA and an excise tax penalty of $100 per notice (with limits) under the Internal Revenue Code. The penalty or excise tax may apply to each Qualified Beneficiary. In addition, individuals may have a cause of action to sue for COBRA coverage and receive the benefits that should have been offered, as well as attorneys’ fees and “other relief.”

3.      Employers That Pay COBRA Premiums Under a Severance Plan or Agreement May Want to Modify Them.  The most recent guidance provided by the federal government clarified that the subsidy applies only to amounts actually charged to the assistance eligible individual for COBRA continuation coverage. Therefore, employers who contribute to an assistance eligible employee’s COBRA premium will not be able to recapture this amount.  As a result, these employers may want to consider restructuring their severance policies so that they can get a tax credit for those amounts.

 

There’s much more to the new COBRA subsidy rules than first meet the eye. If you’re still confused, it’s not too late to sign up to the teleconference that I’ll be giving this Friday, through BLR

As always, consult with a local attorney to determine how the new law applies to your business.