employee severance agreements: latest...

Employee Severance Agreements: Latest Guidance for Employment Counsel Crafting and Negotiating Enforceable Release and Pay Provisions

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WEDNESDAY, FEBRUARY 22, 2012

Presenting a live 90-minute webinar with interactive Q&A

James F. Glunt, Shareholder, Ogletree Deakins Nash Smoak & Stewart, Pittsburgh

Ian D. Meklinsky, Partner, Fox Rothschild, Lawrenceville, N.J.

Louis L. Chodoff, Partner, Ballard Spahr, Cherry Hill, N.J.

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EMPLOYEE SEVERANCE AGREEMENTS Latest Guidance for Employment

Counsel

Presented By:

James (Jay) F. Glunt, Esq. February 22, 2012

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FIRST CLASS SERVICE, COAST TO COAST 6

Recent Developments

• Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) Reporting Requirements

• Case Law Trends

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What does bullet proof mean?

• Importance of Finality (Release as Deterrent)

• Importance of Compliance (Defeating Validity Challenge)

• Is signing on the dotted line enough?

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A. MMSEA Reporting Requirements

- New mandatory reporting requirements went into effect on January 1, 2012.

- Comes out of workers’ compensation practice.

- Corporate workers’ compensation and EPLI carriers are highly interested in compliance.

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General rule: Any matter involving a potential plaintiff/claimant who is eligible for Medicare benefits that results in a settlement including a general release of claims will require reporting, regardless of whether there was a determination or admission of liability.

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New provisions to include in all settlement (not severance) agreements. 1. Acknowledgement of Medicare’s

interest. 2. General indemnity language. 3. Release as to private cause of

action under 42 USC 1395y(b)(3)(A) et seq.

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B. Legal Standards for Valid Release

1. Underlying Principles

• offer/acceptance • consideration • duress, mistake, other defenses • affirmative defense • burden of proof

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2. Title VII, Equal Pay Act, Rehabilitation Act, ADA, Section 1981, ERISA, WARN Act

- knowing and voluntary test - totality of the circumstances - Alexander v. Gardner-Denver

Co., 415 U.S. 36 (1974).

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“Knowing and Voluntary”

clear language

consideration

time to read

advise to consult with attorney

► education

► business experience

► actually read and consider?

► actually consult?

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Objective or Subjective Standard? Daniel P. O’Gorman, A State of Disarray: The “Knowing and Voluntary” Standard for Releasing Claims Under Title VII of the Civil Rights Act of 1964, 8 U. Pa. J. Lab. & Emp. L. 73 (2005).

Thesis: While an agreement to release Title VII claims might not require the application of the objective theory of contracts like a contract in a commercial transaction, it also does not require application of the “voluntary, knowing, and intelligent” constitutional waiver standard.

Craig Robert Senn, Knowing and Voluntary Waivers of Federal Employment Claims: Replacing the Totality of Circumstances Test with a “Waiver Certainty” Test, 58 Fla. L. Rev. 305 (2006).

Thesis: Due to the totality test’s shortcomings and problematic consequences for employers, employees, and the courts, a new and reformed analysis is needed to determine whether a waiver of non-ADEA federal employment claims is knowing and voluntary.

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Objective or Subjective Standard?

Parsons v. Pioneer Seed Hi-Bred Int’l, Inc., 447 F.3d 1102, 1104 (8th Cir. 2006) (district court should not have relied upon employee’s subjective state of mind when determining whether release agreement was valid under ADEA/OWBPA).

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1st Hernandez v. Philip Morris USA, Inc, 486 F.3d 1 (1st. Cir. 2007)

(release of Title VII claim).

3d W.B. v. Matula, 67 F.3d 484 (3d Cir. 1995) (release of Rehabilitation Act claim).

5th Chaplin v. Nations Credit Corp., 307 F.3d 368 (5th Cir. 2002) (release of ERISA claim).

6th Alonso v. Huron Valley Ambulance Inc., No. 09-1812 (6th Cir. April 26, 2010) (release of right to judicial forum).

7th Hampton v. Ford Motor Co., 561 F.3d 709 (7th Cir. 2009) (release of Title VII claim, no tender back as alternative reason for denying validity challenge).

10th Torrez v. Public Service Co., 908 F.2d 687 (10th Cir. 1990) (release of 42 U.S.C. § 1981 claim).

“Knowing and Voluntary” Cases

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Can WARN Act claims be released?

When it applies, the WARN Act requires employers to provide employees with 60 calendar-day advance notice before a plant closing or mass layoff. Can an employee’s WARN Act rights be released?

• Allen v. Sybase, Inc., 468 F.3d 642, 653-56 (10th Cir. 2006) (no release of Warn Act claim when claim arose after release was signed).

• Joe v. First Bank System, Inc., 202 F.3d 1067, 1070 (8th Cir. 2000) (WARN Act claim released by general waiver).

• Williams v. Phillips Petroleum Co., 23 F.3d 930, 936-37 (5th Cir. 1994) (WARN Act claims released, no tender back as alternative basis, and appeal dismissed as frivolous).

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3. ADEA Claims

- knowing and voluntary test is set by the OWBPA (29 USC § 626(f))

- statutory factors supplemented by EEOC (29 CFR § 1625.22)

- rationale: older workers may have difficulty returning to work

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OWBPA is a Floor, Not a Ceiling

3rd Wastak v. Lehigh Valley Health Network, 342 F.3d 281, 283 (3d Cir. 2003) (OWBPA sets the minimum requirements, and pre-existing totality-of-the-circumstances test also applies).

9th Syverson v. IBM, 472 F.3d 1072, 1075-76 (9th Cir. 2007) (employer must meet statutory requirements as well as knowing and voluntary standard).

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OWBPA is a Floor, Not a Ceiling

10th Bennet v. Coors, 189 F.3d 1221, 1230 (10th Cir. 1999) (OWBPA compliance is required, coupled with an assessment of totality of the circumstances).

11th Griffin v. Kraft General Foods, Inc., 62 F.3d 368, 371-73 (11th Cir. 1995) (OWBPA sets forth minimum requirements; totality of the circumstances must still be considered).

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Notable OWBPA Cases Raczak v. Ameritech Corp., 103 F.3d 1257 (6th Cir. 1997) (varying potential labels to use as “job title” for group termination disclosures should be resolved by focusing on “understandability” to workers). American Airlines, Inc. v. Cardoza-Rodriguez, 133 F.3d 111 (1st Cir. 1998) (the phrase “I have had reasonable and sufficient time and opportunity to consult with an independent legal representative” insufficient). Cole v. Gaming Entertainment, L.L.C., 199 F.Supp.2d 208 (D. Del 2002) (the phrase “[e]mployee acknowledges that he/she has been advised to consult with an attorney” is insufficient under OWBPA).

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Notable OWBPA Cases

Decisional Unit means: “[T]hat portion of the employer's organizational structure from which the employer chose the persons who would be offered consideration for the signing of a waiver and those who would not be offered consideration for the signing of a waiver.” 29 CFR § 1625.22(f)(3).

Kruchowski v. Weyerhaeuser Co., 446 F.3d 1090 (10th Cir. 2006) (inaccurate identification of decisional unit renders ADEA releases invalid).

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Notable OWBPA Cases Thormforde v. IBM Corp., 406 F.3d 500 (8th Cir. 1999) (holding that ADEA waiver was invalid because not written in manner calculated to be understood).

Syverson v. IBM Corp., 472 F.3d 1072 (9th Cir. 2007) (same waiver document, different circumstances, same result).

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4. Covenants not to Sue

Release

- Affirmative Defense (FRCP 8)

- No counterclaim - No fees/recovery

Covenant

- Offense - Counterclaim - Fees/recovery

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Release vs. Covenant Not to Sue Black’s Law Dictionary, 8th ed. (2004) “Release” The act of giving up a right or claim to

the person against whom it could have been enforced; the relinquishment or concession of a right, title, or claim.

“Covenant not to Sue” A covenant (contract) in which a party

having a right of action agrees not to assert that right in litigation.

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In search of a bullet proof release . . .

• Importance of Finality: Include a covenant not to sue as a separate provision? (Release as Deterrent)

• Importance of Compliance: Will the covenant not to sue cause confusion as to the ADEA release? (Defeating Validity Challenge)

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First Attack on Covenants Not to Sue

“No waiver may be used to justify interfering with the protected right of an employee to file a charge or participate in an investigation or proceeding conducted by the Commission.”

29 USC § 626(f)(4)

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Second Attack on Covenants Not to Sue

“No ADEA waiver agreement, covenant not to sue, or other equivalent arrangement may impose any condition precedent, any penalty, or any other limitation adversely affecting any individual’s right to challenge the agreement.”

29 CFR § 1625.23(b)

See Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998).

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Third Attack on Covenants Not to Sue

“written in a manner calculated to be understood”

“Waiver agreements must be drafted in plain language . . . [which] usually will require the limitation or elimination of technical jargon and of long, complex sentences.”

29 CFR § 1625.22(b)(3)

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Fourth Attack on Covenants Not to Sue

“The waiver agreement must not have the effect of misleading, misinforming, or failing to inform participants and affected individuals. Any advantages or disadvantages described shall be presented without either exaggerating the benefits or minimizing the limitations.” 29 CFR § 1625.22(b)(4)

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Fifth Attack on Covenants Not to Sue

“Agreements extracting such promises [not to file a charge or participate in an EEOC proceeding] may also amount to separate and discrete violations of the anti-retaliation provisions of the civil rights statutes.” EEOC Enforcement Guidance on Non-Waivable Employee Rights Under EEOC Enforced Statutes (04/10/97) 29 CFR § 1625.22(i)(2)

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Two Questions

Does your form of release have a covenant not to sue?

If so, do you have carve-outs?

Retain right to file charge. Retain right to challenge ADEA waiver.

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5. State Specific Requirements

Minnesota Release of claims under Minnesota’s Human Rights Act can be revoked within 15 days after execution (ADEA is 7 days). M.S.A. § 363A.31(2).

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B. Legal Standards for Valid Release Missouri Upon request, law requires “service letter” stating reasons for termination or resignation. V.A.M.S. § 290.140.

New York Employers, within five working days of termination, must give written notice with exact date of termination and cancellation of benefits. N.Y. Lab. Law § 195(6).

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Ohio Employee must be notified at the time of termination of the right to continuation of medical benefits and of the contributions required. Ohio Rev. Code Ann. § 3923.38(C)(2).

Virginia Law prohibits actions by an employer to prevent an employee from obtaining other employment. Va. Code Ann. § 40.1-27. See also Haigh v. Matsushita Elec. Corp. of America, 676 F.Supp. 1332 (E.D. Va. 1987).


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West Virginia Must reference state statute by name, advise to see attorney, 21 days to consider and 7 days to revoke, and must provide toll free phone number for state bar association. West Virginia Human Rights Commission Legislative Rule § 77-6-1.


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Contact Information

James (Jay) F. Glunt 412 394 3339 [email protected]

Employee Severance Agreements: Latest Guidance for Employment Counsel © 2012 Fox Rothschild

Employee Severance Agreements: Latest Guidance for

Employment Counsel

February 22, 2012

Presented by: Ian D. Meklinsky, Esq.

38


What Are the Standards For a Valid Release

No standard form Can address wide range of issues Release must be knowing and voluntary Must be supported by consideration

- Something of value - Something to which employee is not otherwise

entitled Must comply with the Older Workers Benefit

Protection Act (“OWBPA”) - If the employee is 40 years of age or older

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OWBPA Sets forth strict criteria for releasing age

discrimination claims (ADEA) Requirements are strictly construed Applies to reductions in force as well as

individual terminations and voluntary resignations

Applies to releases by employees with existing claims and employees with no active or foreseeable claims

40


OWBPA’s Release Requirements

Waiver must … - Be written in language easily understood by

average employee Brief, plain language Limited legalese Recite that employee understands the language,

including that he/she is releasing any age discrimination rights or disputed claims as of the date of the execution of the release

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Waiver must … - Specifically refer to the rights or claims

arising under the ADEA - Not waive rights or claims that may arise

after the date of the execution of the release - Provide for consideration which is in addition

to anything of value to which the employee is already entitled

- Advise employee in writing to consult with an attorney prior to executing the agreement

(continued)

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OWBPA’s Consideration Period

Must give the employee the appropriate amount of time to consider the agreement - Typically 21 days

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Group or class terminations (more than 2 employees) – 45 days - Must also provide employee with detailed

information concerning those eligible and ineligible for separation package

(continued)

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OWBPA Consideration Period

EEOC Charge or Lawsuit – “reasonable period of time” - Not well-defined – depends on the

circumstances - Usually less than 21 or 45 day period - No coercion

(continued)

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OWBPA Consideration Period

Should be triggered upon employee’s actual receipt of written release agreement Consideration period need not pass

completely before release may be executed - Employee may accept the release

agreement earlier and waive the 21/45 day period

(continued)

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Waiver must … - Include clear statement that employee has

been given appropriate amount of time to consider the release agreement

(continued)

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Waiver must … - Provide for 7 day revocation period after

signing - 7 day period is NOT waivable Release is not effective until 7 days have passed

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OWBPA’s Release Requirements - Summary

Waiver must … - Be written in easily understood language - Specifically refer to rights or claims arising

under the ADEA - Not waive rights that arise after date waiver

is executed - Provide consideration of value

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OWBPA’s Release Requirements - Summary

- Advise employee to consult with an attorney - Give employee at least 21 days to consider

the agreement - Provide for 7 day revocation period

(continued)

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OWBPA’s Release Requirements – Case Law

Oubre v. Entergy Operations, Inc. (Supreme Court 1998) - Release of age claim which does not fully

comply with OWBPA requirements is of no effect

- Employee who executes an OWBPA-defective release does not have to return the severance consideration received if employee later sues employer

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Oubre v. Entergy Operations, Inc.

Facts: employee given option of improving job performance or accept a severance agreement - Given 14 days to consider offer - Consulted with attorneys - Accepted package and agreed to release all

claims

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Oubre v. Entergy Operations, Inc.

Supreme Court – waiver invalid because: - Employee was not given 21 days to consider

her options - Employee was not given 7 days to revoke

agreement - Release made no specific reference to

claims arising under the ADEA

(continued)

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Oubre v. Entergy Operations, Inc. and EEOC Regulations

29 CFR 1625.23 – amended to codify Oubre Ruling - Employee who executes an OWBPA-

defective waiver is not required to tender back consideration prior to filing lawsuit

- Employee is not required to pay employer’s attorneys fees solely because they bring suit

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Family and Medical Leave Act (“FMLA”) Releases

29 CFR 825.220(d) - Employee cannot release right to pursue

prospective FMLA claims against employer - Employee can release right to pursue FMLA

claims based on past employer conduct - Employee can agree to voluntarily settle past

FMLA claims

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Claims that Cannot be Released in a Severance Agreement

Employer cannot require employee to waive right to file … - Charge of discrimination with the EEOC Against public policy/could constitute retaliation

- Workers’ Compensation Benefits claim - Fair Labor Standards Act (“FLSA”) claim - Claims challenging the severance

agreement - Claims arising after the execution of the

agreement

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State Specific Requirements – New Jersey

Waivers must be knowing and voluntary - Evaluated under a “totality of the

circumstances” standard Clarity and specificity of release language Should clearly indicate what claims are being

waived Employee’s education and business experience Amount of time employee had to deliberate Role of employee in deciding terms of agreement

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State Specific Requirements – New Jersey

Whether employee’s rights were known or should have been known at time of release

Whether employee sought or was encouraged to seek advice of counsel

Whether consideration given and accepted exceeded benefits employee was already legally entitled to

(continued)

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State Specific Requirements – California

Release must contain language that employee waives rights under Cal. Civ. Code § 1542

Release must also quote following language from Cal. Civ. Code § 1542: - “a general release does not extend to claims

which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

59


State Specific Requirements – Minnesota

To release claim under the Minnesota Civil Rights Act, employee must … - Be given 15 day revocation period Unless release is given in settlement of a claim

filed with an administrative agency - Be advised of right to rescind the release in

writing within the 15 day revocation period

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State Specific Requirements – West Virginia

To release a claim under the West Virginia Human Rights Act, each of the following conditions must be met (to ensure that waiver was knowing and voluntary): - Waiver must be in plain English and

understood by average person with similar education and work background

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- Waiver must specifically refer to rights or claims arising under the Human Rights Act

- Waiver may not extend to rights or claims that arise after the date the waiver is executed

- Employee must receive consideration of value in addition to anything employee is already entitled to

(continued)

62



- Employee must be advised in writing to consult an attorney and provided with toll free phone number to West Virginia State Bar Association

- Employee must be given 21 days to consider agreement

- Employee must be given 7 day revocation period after execution of agreement

(continued)

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EEOC-Approved Language (2006 Western District of New York)

- “Except as described below, you agree and covenant not to file any suit, charge or complaint against [employer] in any court or administrative agency, with regard to any claim, demand, liability or obligation arising out of your employment with [employer] or separation therefrom. You further represent that no claim, complaints, charges, or other proceedings are pending in any court, administrative agency, commission or other

64


EEOC-Approved Language (2006 Western District of New York)

forum relating directly or indirectly to your employment by [employer]. Nothing in this agreement shall be construed to prohibit you from filing a charge or participating in any investigation or proceeding conducted by the EEOC or comparable state or local agency. Notwithstanding the foregoing, you agree to waive your right to recover monetary damages in any charge or lawsuit filed by you or anyone else on your behalf.”

(continued)

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Blue Pencil Rule

Agreement should include language providing court with authority to “blue pencil” or narrow any offending provision to make it enforceable - Ensures that release is not interpreted as

overbroad and unenforceable in its entirety

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Contact Information

Ian D. Meklinsky, Esq. Fox Rothschild LLP

Princeton Pike Corporate Center 997 Lenox Drive, Bldg. 3

Lawrenceville, NJ 08648-2311 Main 609/896-3600 Direct 609/895-6756

Fax 609/896-1469

[email protected] www.foxrothschild.com

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DMEAST #13684386

Employee Severance Agreements: Drafting Tips

Louis L. Chodoff, Esq. [email protected] 856.761.3436

69 DMEAST #13684386

“To Release or Not to Release…”

• 2 schools of thought re: the use of releases - Effective tool to prevent litigation

v.

- Document that invites/encourages litigation

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Employer Benefits to Use of a Severance Agreement

• Known “ending” re: employment relationship

• Additional terms that could benefit employer

71 DMEAST #13684386

Lawyer Drafting / Review

• Not all separations are the same – agreements need to be tailored to particular situation

• Beware the “form” agreement! Needs to be current re: law

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Right of Employee to Counsel

• Agreement should expressly advise employee to consult an attorney of own choosing.

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State Law Issues

• Employers with operations in different states – don’t use the same agreement in every location – State laws are different

• Some differences to consider: - Allotted but unused PTO - Form and language of release - Claims prohibited from being released - Specific statutes which must be expressly mentioned in release

74 DMEAST #13684386

Language of Agreement

• Avoid legalese – keep it as short and simple as possible

• Multi-lingual workforce? Have agreement printed in appropriate languages based on your workforce

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Other Considerations/Specific Terms

1. Does the employee have an employment agreement? • If yes:

- What restrictions, if any, does the agreement place on employer’s right to terminate?

- Reasons? For cause? Notice Period?

- Is the employee entitled to severance pay under the employment agreement?

- If so, consideration issues for the release.

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Other Considerations/Specific Terms (cont’d)

2. Set Termination Date • Immediate termination v. continuation of employment for period

of time

• If continuation of employment, be careful - Duty of loyalty

- Customer/client interference

- Sabotage

- Confidential/proprietary information

- Morale of other employees

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3. Payments Under the Agreement • Timing of severance payment:

- Pay over a period of time or in a lump sum?

- When payment to be made?

▫ Agreement signed and returned and applicable revocation period has expired with no revocation

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4. Tax Issues/Consequences of Payments • Is payment gross or net?

- Wages v. emotional distress/attorney’s fees, etc.

- If no withholding: (a) state employer makes no representations regarding taxability; (b) employee is responsible for taxes, interest and penalties; and (c) agrees to indemnify employer for tax consequences

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5. Benefits • Continuation of Health Benefits

• Other insurance benefits

• Company vehicle

• Outplacement Services

• Computer, blackberry, mobile phone

80 DMEAST #13684386


6. Consideration • Consideration provided in the Agreement is more than employee

is otherwise entitled to

• Consideration is being provided for employee’s execution of the agreement, which includes the general release of any and all claims against the employer

• Consideration if “agreement” revoked under ADEA

• Language of “revocation” provision in Agreement – only applies to federal age discrimination claims

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7. Return of property • Set date for return • Expressly identify property broadly, including document and

what should be returned, and to whom • Computers and electronic devices

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8. Employee Assistance to Employer • Transition Assistance • Cooperation in Litigation and Investigations

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9. Restrictive Covenants • Include provision reaffirming existing restrictive covenants • If no prior restrictive covenant agreement with employee,

consider whether to include restrictive covenants in release agreement

84 DMEAST #13684386


10. Review of Agreement

• OWBPA review period (21 or 45 days) • Are there any state law requirements? • Reasonable review period if no applicable statutory or regulatory

requirement

85 DMEAST #13684386


11. Miscellaneous Provisions

• Confidentiality • Non-Disparagement • No Admission of Liability • No Re-Hire Provision • References • Choice of Law • Court v. arbitration • Attorney’s fees for employer in case of employer breach • “Jointly drafted” provision • Signed in subparts • Integration Clause • Severability • Assignment

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