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Power mongers: curbing employee abuse of workers' comp and termination agreements: traps for the unwary: how to draft severance agreements that will stand up in court.


How to draft severance agreements that will stand up in court

Sooner or later, all employers in long-term care--without exception--are faced with the necessity of firing or laying off employees. In many cases, nursing homes soften the blow for their employees by providing severance payments. In return, employers ask for a release--a promise from their employees that they will not pursue claims against the company.

When done properly, severance agreements benefit both you and your former employees. Terminated employees receive an extra benefit to help them transition to a new job, and you can move forward knowing that you won't face a lawsuit.

Unfortunately, many nursing home managers believe that when it comes to releases, one size fits all. You might get into the habit of using and reusing the same release in all cases, no matter what the context. By doing so, you run the risk of depriving your facility of the benefit of bargaining with terminated employees.

To give one example, a release signed by a 40-plus-year-old employee that does not comply with the Older Workers Benefit Protection Act is not a valid release. And a release that conditions the receipt of severance benefits upon an employee's agreement not to file a charge with the Equal Employment Opportunity Commission (EEOC) is not only invalid, it also constitutes unlawful retaliation in some jurisdictions.

In either circumstance, you can find yourself in a lawsuit with the disgruntled former employee to whom you just paid severance--and, by the way, he or she gets to keep the money, regardless of the outcome. Not only that, but you can also find yourself in a lawsuit with the EEOC.

Following are several common traps that nursing home leaders fall into when drafting severance agreements, as well as some pointers about what is and is not permissible to include in such agreements under law.

Trap #1: Overly broad release language

Consider the 2006 case of EEOC v. Lockheed Martin in Maryland, which demonstrates the danger of using overly broad language to release federal discrimination claims. In that case, Lockheed gave severance benefits to employees who were going to be laid off as a result of a corporate merger. In exchange for providing these benefits, Lockheed required employees to sign a release of claims that broadly prohibited employees from pursuing "any claims or charges" against Lockheed "for themselves or as a representative on behalf of others."

The federal district court in Maryland held that Lockheed violated the antiretaliation provisions of the federal discrimination laws because the use of the word "charges" implied that the receipt of severance benefits was conditioned upon the waiver of an employee's right to file an EEOC charge or otherwise participate in EEOC investigations or hearings. The National Labor Relations Board also takes the position that a release preventing an employee from filing a charge with the agency is retaliatory.

Does this mean that federal discrimination claims, such as claims of race, sex, age, and disability discrimination, cannot be released at all? No. But employers must draft these releases with care.

You may condition the receipt of severance benefits on the waiver of the employee's right to file a lawsuit or collect monetary or other personal relief. You cannot:

1. Require an employee to waive the right to file an administrative charge with the EEOC or any other governmental agency

2. Prevent an employee from testifying, assisting, or participating in any manner in an investigation by the EEOC or any other governmental agency

Draft all severance agreements carefully to clearly make this distinction and include a provision expressly stating that terminated employees retain the right to file administrative charges and participate in administrative investigations and proceedings.

You are allowed to condition the receipt of severance benefits on the employee's waiver of the right to file a lawsuit or collect monetary or other personal relief from either a lawsuit or an administrative proceeding. But a severance agreement that prohibits employees from filing an EEOC charge or participating in EEOC investigations or hearings is not enforceable. Draft all severance agreements carefully, clearly making this distinction.

Understanding the FMLA

Another potential danger of using overly broad release language arises with respect to claims under the Family and Medical Leave Act (FMLA). At present, courts are divided over whether FMLA claims can be released at all.

One federal appeals court has held that such claims can be released by an employee (Faris v. Williams WPC-I, Inc.). Another federal appeals court has held that such claims cannot he released pursuant to a severance agreement, but may only be released upon approval of a court or the Department of Labor (Taylor v. Progress Energy, Inc.).

Although the Taylor decision is currently under review by all of the judges of the Fourth Circuit Court of Appeals, another federal court in Pennsylvania has recently agreed with its reasoning in Daugherty v. TEVA Pharms.

At this time, there is no consensus among the courts as to whether an employer can include a release of potential FMLA claims in a severance agreement. Employers outside of Texas, Louisiana, and Mississippi must exercise caution before including such waivers in severance agreements and should consult with legal counsel to determine the rapidly changing state of the law in this area.

Trap #2: Too much legalese in your release

Another common problem with severance agreements is that they are drafted using legal terms that are not easily understood by the average employee. Two recent court decisions involving a severance agreement prepared by IBM, Syverson v. IBM and Thomforde v. IBM, show how the use of such language can render a release invalid.

IBM's severance agreement included a release of claims, including claims arising under the Age Discrimination in Employment Act (ADEA). But it also included a "covenant not to sue" provision, which required an employee to pay all of IBM's legal costs if he or she violated the severance agreement by suing IBM based on a claim that he or she had released. Such covenants not to sue are not permitted for ADEA claims. For this reason, the severance agreement provided that the "covenant not to sue does not apply to actions" under the ADEA.

IBM's agreement was legally correct, but the court held that its severance agreement was invalid because an average employee would not understand the distinction between the "release" of claims and the "covenant not to sue." As a result, the two courts permitted employees who had signed IBM's severance agreement to pursue ADEA claims against the company.

The lesson here is simple: Severance agreements should not include technical jargon or employ long, complex sentences. Draft agreements in plain English. This does not mean that a severance agreement should sacrifice accuracy for simplicity, but rather that the agreement must explain the rights and duties of the employee and the employer in a clear and understandable manner. Ask yourself, "Would all of my employees be able to understand this?"

Trap #3: Failing to include sufficient detail to comply with the requirements of the Older Workers Benefit Protection Act

No provision has caused more headaches for employers offering severance agreements than the Older Workers Benefit Protection Act. This law sets forth a series of requirements for an effective waiver or release of age discrimination claims under federal law. These requirements apply to any severance agreement prepared for an employee aged 40 or older--which, given the number of older nurses and long-term care workers, might mean quite a few of your employees. If a release fails to meet any of the statutory requirements (see "SEVERANCE REQUIREMENTS"), the release is ineffective.

If you offer the severance agreement to a group of employees, it must meet all of these requirements with one exception--namely, employees must be given 45 days to consider the agreement instead of 21 days. In addition, the agreement must:

* Inform the affected employees of the group of employees covered by the employment termination program of any eligibility factors or time limits for the program

* Provide the job titles and ages of all individuals eligible or selected for the program, as well as the ages of all individuals in the same job classification who were not selected

Given the uncertain state of the law, it is recommended that you have your agreements reviewed by legal counsel who are aware of the latest developments in the law.


If an individual is being terminated, the severance agreement must meet the following requirements:

1. It must be written in a manner calculated to be understood by the employee

2. It cannot require the employee to waive rights or claims arising after the date the agreement is executed

3. The employee must receive something of value for signing the agreement that is in addition to what he or she is already entitled to receive

4. The agreement must advise the employee to consult with an attorney prior to executing the agreement

5. The employee must be given at least 21 days to consider the agreement

6. The agreement must provide that the employee has seven days after signing the agreement to change his or her mind and revoke the agreement--Morris L. Hawk

Morris L. Hawk, Esq., is an attorney at Walter & Haverfield LLP in Cleveland, OH, where he specializes in labor and employment law. Contact him at
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Author:Hawk, Morris L.
Publication:Contemporary Long Term Care
Article Type:Cover story
Date:Apr 1, 2007
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