Oct 5 2017
By Daniel Schwartz on October 5th , 2017
The Dialogue – an occasional online 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 complaints: “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!