Buying Peace?

Laner Muchin, Ltd.

Every employment relationship ends at some point, and some end involuntarily and with hard feelings.  Sometimes, hard feelings come from current employees as well.  When these hard feelings exist, employment claims are possible, and so many employers seek to prevent or resolve those claims through some form of a release agreement, such as a severance or settlement agreement.  In other words, employers commit to doing something for the individuals (usually the payment of an amount of money), in exchange for the individuals' agreements not to pursue claims against the employers.  Usually, the employer's motive is to pay something now in order to avoid uncertain risks later.

    Buying peace is a great goal, but it may not always be a realistic expectation. That is not to say that it is a bad investment; instead, as with any investment, it is important for employers to know exactly what they are buying.

    The starting point is to make sure that what an employer is buying has value.  In the severance/settlement scenario, that means making sure that the agreement is enforceable.  One of the worst situations for employers is to find out after the fact that the monies they spent were used to fund the lawsuits against them, and that the employers have little or no recourse even to recover those monies.

    Enforceability usually relates to whether: (a) the agreement satisfies any statutory procedural or content requirements, and (b) whether the employer can prove that the employee "knowingly and voluntarily" entered into the agreement.  Statutory procedural requirements may include things like dictating the amount of time given for the employee to consider whether to sign the agreement, a revocation period, prohibiting agreements within a certain period of time immediately after the event that caused the claimed injury, and a variety of specific terms that must often be included, such as encouragement to seek legal advice.

    Whether the agreement was "knowing and voluntary" is a fact­ specific inquiry, and it is the employer's burden to prove it (as an affirmative defense).  This involves consideration of the complexity of the language, evidence of coercion and whether there are any other communications that are inconsistent with the terms of the agreement.  For example, if a supervisor tells an employee that the release would not cover a specific claim, that statement could override language in the agreement that would otherwise have released that claim.  Thus, when talking about the effect of a release, employers and their agents must be careful not to say anything arguably contrary to the agreement, and employers should be careful about what they do that puts pressure on the individual to sign.

    When considering enforceability, it is also important to recognize the impact of public policy.  For example, American public policy requires that most employees be paid a minimum wage.  If an employer pays less than the minimum wage and then seeks to "settle" a wage claim by paying an amount that is still less than the minimum wage, that agreement would not be enforceable.

    Accordingly, releases of wage claims must often be approved by a court or an administrative agency in order to be enforceable.  The same can apply to workers' compensation claims and certain statutorily mandated leaves of absence.  This is not to say that releases of these types of claims cannot be effective; it just means that employers need to be more thoughtful about what their real interests are and how best to protect those interests.  For example, it might be sufficient that rather than "releasing" a workers' compensation claim, the agreement contain language whereby the employee acknowledges that there are no work-related injuries or illnesses.

    Aside from whether claims can be released, there is also an issue about preventing employee complaints.  For instance, the EEOC takes the position that it is illegal for an agreement to prohibit an employee from complaining to the EEOC.  Even if the employee has been paid, the EEOC believes that it can pursue claims on the employee's behalf, and that the payment to the employee is not a bar to recovery, but a credit toward any additional recovery on behalf of that employee.

    With all of the restrictions and limits on these agreements, one might wonder if they are worth the effort. The answer is often a resounding "Yes!" Most employees would never think of challenging an agreement they signed.  Of the few who might challenge them, a well-written release is usually very effective in protecting the employer's key interests.  

    The real issue is not whether releases have value. The real issue is assigning the right value to the releases based upon the goals being achieved.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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