Close
Updated:

This great federal court decision I read offers seven keys to a proper severance agreement

by

A lawyer claimed that his employer had discriminated against him based on his race, color, gender, and age, when it terminated his employment and filled a position nearly identical to that which he held prior to his termination with a younger, African-American woman. So he sued.

Oh, I forgot one important fact. By the time he sued, the lawyer-plaintiff had already signed a severance agreement and release (the “Release”).

But, what would ordinarily be game-set-match did not appear to concern the plaintiff all that much. He alleged in his federal court complaint that the defendant fraudulently induced him to sign the Release. Under Pennsylvania law, fraudulent inducement may be found when “an opposing party made false representations that induced the complaining party to agree to the contract.” (Here, supposedly, the defendant fraudulently induced the plaintiff into signing the Release with false representations that his position had been eliminated.)

Fortunately for the defendant, it had a well-drafted severance agreement. Indeed, the court dismissed the plaintiff’s complaint with prejudice. That means he’s done! No second chances.

In dismissing the discrimination action, the court’s opinion highlighted seven key aspects of the Release that supported the court’s decision to dismiss. Here they are:

  1. Clarity and specificity of the release language. The language of the Release was both clear and specific. The Release states that it “covers both claims you know about and those you may not know about that have accrued as of the time you sign this Agreement.” Also, the Release included examples of the types of claims that the plaintiff would release, which included his actual claims in the lawsuit.
  2. Length of time for deliberation. Since the plaintiff was 52 years old, presumably, the defendant must offer him at least 21 days to review the release in order to have a binding release of federal age discrimination claims. In a RIF situation, the separated employee would get 45 days to review and sign. Here, the plaintiff had over a month to review the Release. The court concluded that he was not rushed into signing it.
  3. Knowledge of legal rights at execution. The court also concluded that the plaintiff understood his options when he signed the agreement. Yes, he is a lawyer in good standing. But, an agreement written need only afford the person signing it a fair explanation of what it means to release all potential legal claims.
  4. Encouraged to seek or receive the benefit of counsel. The plaintiff had the opportunity to seek outside counsel. Indeed, as the ADEA requires, the Release included specific language stating: “[y]ou have been advised to consult an attorney before signing this Agreement.” The language was again repeated in bolded letters on the last page of the Agreement above the signature lines.
  5. Opportunity to negotiate the terms. The plaintiff admitted that he had the opportunity to review, revise, and execute the Release.
  6. Consideration in return for the release. The Release stipulates in a straightforward manner that the plaintiff is receiving severance benefits that he would not otherwise be entitled to in exchange for releasing the defendant from liability as covered in the Release. Indeed, the plaintiff would receive six months of pay!
  7. Don’t forget the integration clause! Remember, notwithstanding his legal background and his signature on an otherwise straightforward agreement, the plaintiff claimed that it should not be binding because he was duped into signing it. Enter Sandman the “integration clause.” An integration clause is that boilerplate jawn that says something like, “You agree that this Agreement represents the entire agreement between you and the Company and supersedes any and all prior agreements, arrangements, representations or warranties, whether express or implied, written or oral, that relate to the subject matter of this Agreement. You also agree that neither the Company nor any of its agents, representatives, employees, or attorneys have made any representation to you concerning the terms or effects of this Agreement other than those contained in writing herein.” The purpose of the integration clause is to make sure that any supposed false representations, like the one that the plaintiff alleged that the defendant made about his job elimination, get superseded by the agreement itself. That is exactly what happened here when the plaintiff signed the Release. Thus, the representations are barred from admission by the parol evidence rule.

Seven great tips, eh? I really like this opinion. However, your mileage may vary, especially if you operate in one of those cuckoo states like California. So, use this post as a guide but not a substitute for having good employment law counsel draft or review your separation agreements before they get signed.

If you would like to see a copy of the Release, please email me and, for some cryptocurrency, I’ll hook you up.