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Articles Posted in Severance Agreements

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A recent employment law case recognizes that in certain circumstances, an employer does not violate federal law if it requires former employees to sign away their legal claims against it as a condition to rehiring them as independent contractors.

In 1999, Allstate Insurance Company decided to treat all of its sales agents as independent contractors. Accordingly, that November Allstate fired 6,200 sales agents and gave them four options: (1) return to work as an independent contractor and receive a $5,000 bonus and other benefits; (2) receive $5,000 and the right to sell the employee’s Allstate account in September 2000; (3) receive 12 months of “enhance severance” pay; or (4) receive 13 weeks of ordinary severance pay.

To accept any of the first 3 options, a sales agent was required to sign a release waiving any existing legal claims he or she had against Allstate. Most of the employees accepted one of those three options. The employees who refused to sign releases received only 13 weeks of severance pay.

Employee Termination AgreementThe Equal Employment Opportunity Commission (“EEOC”) filed a lawsuit against Allstate. It claimed the company violated federal law by requiring the employees to release any legal claims they had against Allstate if they wanted to be hired as independent contractors since that meant they would have to give up any discrimination claims they had against the company. Specifically, the EEOC claimed this violated the anti-retaliation provisions of Title VII, the Age Discrimination in Employment Act (“ADEA”) and the Americans with Disabilities Act (“ADA”). Two employees also filed their own lawsuits claiming the releases they signed were invalid.

All three cases eventually were consolidated and Allstate moved to dismiss all of the claims. The court granted partial summary judgment on the claims filed by the former employees. However, it ruled that a trial was necessary to determine whether the employees signed the releases knowingly and voluntarily, and whether the releases were unconscionable.

The trial court also dismissed the EEOC’s entire case. Among other things, it concluded it was not unlawful for Allstate to require former employees to agree to waive their legal claims against it as a condition to hiring them as independent contractors. The EEOC appealed.

Earlier this year, in Equal Employment Opportunity Commission v. Allstate Ins. Co., the Third Circuit affirmed the trial court’s ruling that dismissed the EEOC’s case. The Third Circuit explained that it is well established that employers can offer terminated employees additional benefits if they agree to release their legal claims against their former employer. Of course, such a release is enforceable only if the employee signs it knowingly and voluntarily, receives something of value in exchange for it, and the release does not waive claims that might occur in the future.

The Third Circuit rejected the EEOC’s argument that this case was unique in that Allstate required the employees to sign releases before it would allow them to work as independent contractors. Among other things, it found this argument was illogical since the EEOC admitted companies can offer employees severance pay in exchange for releasing their legal claims. The Third Circuit indicated that Allstate offered employees another alternative to severance pay — working for it as an independent contractor. It ruled that offering this additional option did not make the releases retaliatory or unenforceable, but rather was a benefit to the employees.

The Court further found Allstate could not have retaliated against the employees because refusing to sign a release is not legally protected under Title VII, the ADA or the ADEA because it is not necessarily related to an objection about unlawful discrimination. Likewise, it found the company’s refusal to hire former employees who did not sign the release as independent contractors was not an adverse employment action since the former employees did not have a legal entitlement to be rehired.

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Some of the most common questions employees ask employment lawyers relate to severance pay. Below, we have answered a few of the most frequently asked questions about severance agreements under New York and New Jersey law.

Q: I have been laid off or fired by my company. Am I entitled to severance?

A: In New York and New Jersey there is generally no legal requirement for a company to pay severance to its employees. However, if your company has a severance policy or plan, then it has to pay you severance if you meet the relevant eligibility requirements. Likewise, if you have an individual employment contract, then your employer is required to pay you any severance you are entitled to under your contract.

Even if you are not legally entitled to receive severance, companies often offer severance to employees who they fire without cause. This is particularly common during mass layoffs and reductions in force.

Q: How much severance pay am I entitled to receive?

A: The amount of severance you are entitled to receive depends on what the relevant severance policy, severance offer, or employment contract says. It is often based on how long you worked for the company, such as one or two weeks’ of severance per year. But it also can be based on another formula set by the company, a fixed amount, or determined on a case-by-case basis.

Q: Can I negotiate for more severance pay with my company?

Severance Payments Money.jpgA: It is often possible to negotiate a better severance package. For example, if you have a legal claim against your employer, you or your employment lawyer might be able to negotiate additional severance. Similarly, some companies will agree to pay additional severance for a variety of reasons, such as because you worked for the company for a long time, or because the circumstances leading up to your separation were particularly unfair.

Q: What do I have to give up before I can receive severance pay?

A: What you will have to give up before you can receive severance pay depends on what your company’s policy says and/or what your severance agreement says. At some companies you do not have to give up anything to receive severance pay as long as you meet the eligibility requirements. More typically, you might have to waive any legal claims you have against your company, such as claims for wrongful termination, discrimination, harassment, and retaliation.

It also is common for severance agreements to include non-disparagement provisions, meaning an agreement not to say anything negative about the company. In addition, you might have to agree to enter into a non-compete agreement, meaning an agreement not to work for a competitor for a period of time, or a non-solicitation clause, meaning an agreement not to do business with the company’s customers, clients and/or employees. Of course, whether it is worth agreeing to these types of provisions depends on a number of factors including how much severance you have been offered.

Q: What should I do if I need help understanding or negotiating my severance agreement?

A: If you need a lawyer to review your severance agreement for any problems, to explain certain provisions to you, or to try to negotiate a better severance offer, then it is highly recommended that you find an attorney who specializes in employment law. If your severance agreement is governed by New York or New Jersey law, then we welcome you to contact Rabner Allcorn Baumgart & Ben-Asher to schedule a consultation to discuss your severance agreement.

For more information, please see our previous article: What to Consider Before Accepting a Severance Agreement.

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Often, companies offer money or other benefits to employees who they have laid off or fired, as part of a severance agreement or separation package. Most severance agreements require you to waive your employment law rights before you can receive those benefits. In a recent case, Gregory v. Derry Township School District, the Court of Appeals for the Third Circuit ruled that an employee waived her right to bring a discrimination claim against her employer because she signed a Separation Agreement and General Release, even though she only had 15 minutes to review it before she signed it.

The Third Circuit is the federal appellate court that handles appeals from the District of New Jersey. It ruled that when deciding whether an employee had waived his legal rights, a Court should look at the totality of the circumstances including:

  1. How clear and specific the language of the release is;
  2. The employee’s education and business experience;
  3. How much time the employee had to consider the release before signing it;
  4. Whether the employee knew or should have known his legal rights when he signed the release;
  5. Whether the employee was encouraged to or actually received advice from a lawyer;
  6. Whether the employee had an opportunity to negotiate the terms of the separation agreement; and
  7. Whether the employee received any additional benefits for signing the release.

Applying those factors, the court found that public school teacher Rhauni Gregory could not bring a race discrimination claim against her former employer because the Separation Agreement and General Release she signed included a waiver of all claims arising out of her employment. Ms. Gregory claimed she was forced to resign from her job after her supervisor gave her unfavorable performance evaluations and placed her on an oppressive “intensive assistance track” because she is African-American. However, the Third Circuit found Ms. Gregory had waived the right to bring her national origin discrimination claim because she signed a valid release. It found that the release Ms. Gregory signed was valid even though she signed it within 15 minutes after it was provided to her.

In reaching that conclusion, the court considered the fact that Ms. Gregory’s union representative had negotiated the terms of the resignation with the school district. It also considered the fact that, under the separation agreement Ms. Gregory is entitled to receive medical benefits for herself and her family through the end of the year, and a positive job reference letter. She would not have been entitled to either of those benefits if she had not signed the separation agreement.

The Third Circuit’s opinion in Gregory is unpublished, meaning it is not a binding legal precedent. However, it is an excellent example of why it can be critical to have an experienced employment lawyer review your severance agreement before you sign it. If you have been offered a severance package from your employer in New Jersey or New York, you should consider meeting with an employment attorney before you sign away important employment law rights.

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Many companies offer severance pay to certain employees who they have laid off, downsized, or fired. For example, some companies pay severance to employees who lose their jobs as part of a mass layoff or other reductions in force. Severance is often based on one or two weeks of pay for each year you worked for the company, but the way severance pay is calculated can vary greatly from one job to the next.

Severance pay can help soften the blow of losing your job. However, most severance agreements require you to sign away important legal rights. As a result, it is very important to make sure you understand all of the terms of your severance offer before you agree to it.

In New York and New Jersey, there is no legal obligation for companies to pay any severance to employees. However, if a company has a severance policy, it must follow it. Similarly, if you have entered into an employment contract which entitles you to severance, then your employer must comply with your contract.

What Should I Look Out For Before I Sign a Severance Agreement?

There are many things you should understand before you decide whether to accept a severance offer. Below are some of the most common questions employees have about their severance agreements.

Is my employer offering me enough severance pay?

Perhaps the most common question employees have about a severance offer is whether the employer has offered them “enough” severance. There is usually no simple yes or no answer to that question. However, some important factors to consider include:

What am I entitled to receive if I reject my severance offer?

In some situations, if you reject your severance offer, you will receive nothing. In others, you might be entitled to receive some severance pay even if you do not sign the agreement. Similarly, some companies have policies that entitle you to be paid for your unused vacation, sick, or holday time even if you turn down a severance offer. Others do not.

Has the company offered me everything I am entitled to receive under its severance policy?

In general, a company is required to follow its written severance policy. Under certain circumstances, a company can establish a severance policy by having an established practice of paying severance to its employees who meet certain conditions. It is usually a good idea to make sure your company has included everything you are entitled to receive under its policy or past practice.

Do I have a legal claim against my employer?

Most severance agreements require you to give up all of your legal claims against your former employer before you can receive severance. For example, if you were fired because of your age, race, national origin, gender, disability, religion, or some other unlawful reason, then an employment lawyer may be able to negotiate a better severance package to settle your legal claim. If you sign a severance agreement, you might be waiving your right to sue for discrimination, retaliation, harassment, breach of contract, or any other claims you may have against your former employer.

Is the amount of severance I have been offered reasonable or fair?

Frequently, the amount of severance you have been offered seems unfair or unreasonable, especially considering how long you worked for the company, and how much you have contributed to it. Similarly, your severance offer might not seem fair compared to what your coworkers or peers have been paid in the past.

Unfortunately, companies are not required to be fair or reasonable. If they were, you probably would not have been fired in the first place. However, if your company has not made a fair severance offer, it might be possible for an experienced employment lawyer to negotiate a better severance offer for you.

What rights am I giving up if I accept my severance offer?

Every severance agreement is different, but most require you to waive all of your legal claims against your employer. As a result, it is usually a good idea to talk to an employment law attorney before you decide whether to accept your severance offer. That is one of the reasons why severance agreements usually recommend you consult with a lawyer before you sign it.

Severance agreements often require you to give up other important legal rights. For example, they might require you to agree not to compete with your former employer, or not to solicit your former customers for a period of time. If your severance agreement contains a non-compete or a non-solicitation provision, then you should consider how that provision might effect your ability to find another job, or open a new business, before you decide whether to accept the severance offer.

You should make sure you understand and agree to all of the provisions in your severance offer before you sign it. This is yet another reason why it is usually a good idea to speak with an employment lawyer before you sign a severance agreement.

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On July 15, 2009, the United States Equal Employment Opportunity Commission (EEOC) issued guidance to employees who are offered severance agreements that include releases of employment law claims after they have been laid off or otherwise fired. More specifically, the EEOC’s guidance answers questions employees might have regarding severance agreements that require them to waive their rights under employment laws such as Title VII of the Civil Rights Act (Title VII), which prohibits gender discrimination, race discrimination, national origin discrimination, and religious discrimination; the Americans with Disabilities Act (ADA), which prohibits disability discrimination; and the Age Discrimination in Employment Act (ADEA),which prohibits age discrimination. While it is focused on federal claims, the guidance is also relevant to claims under state laws, such as the New Jersey Law Against Discrimination (LAD), the New Jersey Conscientious Employee Protection Act (CEPA), the New Jersey Civil Rights Act (NJCRA), and the New York Human Rights Law (NYHRL).

A significant portion of the EEOC’s guidance discusses what is required for a waiver in a severance agreement to be valid. Specifically, waivers (1) must be knowing and voluntary, (2) must offer the employee some consideration, meaning a benefit the employee would not otherwise receive, and (3) must comply with applicable state and federal laws.

The EEOC notes that, to determine whether an employee knowingly and voluntarily waived the right to sue for employment law claims like discrimination, retaliation, or harassment, courts generally consider factors such as:

  1. Whether the severance agreement is clear and specific enough that the employee understands it, considering his or her level of education and experience;
  2. Whether the severance agreement was the result of fraud, duress, undue influence, or other improper conduct by the employer;
  3. Whether the employee had sufficient time to read and consider the severance offer;
  4. Whether the employee consulted with an attorney, or the employer encouraged the employee to consult with an attorney, before accepting the severance offer; and
  5. Whether the employee had input into negotiating the terms of the severance agreement.

The EEOC guidance also discusses the special minimum requirements for a release to waive age discrimination claims under the ADEA. Those requirements come from a 1990 amendment to the ADEA, called the Older Workers Benefit Protection Act (OWBPA). The OWBPA contains seven requirements for a valid waiver of federal age discrimination claims:

  1. The waiver must be written clearly, so the employee can understand it;
  2. The waiver must specifically refer to claims under the ADEA
  3. The waiver must advise the employee to consult a lawyer before accepting it;
  4. The waiver must give the employee at least 21 days to consider the severance offer;
  5. The waiver must provide the employee at least seven days to revoke the agreement after he or she signs it.

The employee must not be required to waive the right to pursue any violations of his or her future rights under the ADEA, meaning that the employee cannot waive any violations of the ADEA that occur after the effective date of the waiver; and
The employee must receive additional consideration, typically severance pay or benefits, that he or she would not be entitled to receive otherwise.A waiver under the ADEA is also unenforceable if the employee signs it as the result of the employer’s fraud, undue influence, or other improper conduct, or if the employee signed the release because it contains a material mistake, omission, or misstatement.

The EEOC guidance discusses additional requirements of the OWBPA that apply to mass layoffs, reductions in force, early retirement incentive plans, and other employer exit incentive programs and termination programs. For example, employers must give employees at least 45 days, rather than 21 days, to consider a waiver of the right to sue for age discrimination under the ADEA if they are terminated as part of a mass layoff or reduction in force. Employers also must provide employees who are impacted by a mass layoff or reduction in force with a list of the job titles and the ages of all individuals in their “decisional unit” who were eligible for, selected for, and not selected for, inclusion in the mass layoff or reduction in force. Depending on the circumstances, the relevant decisional unit can be the entire company, a division, a department, the employees reporting to a particular manager, or the employees in a particular job classification.

The EEOC guidelines contain a checklist of things employees should do if they are offered a severance agreement, including that they should:

  1. Make sure they understand the severance agreement;
  2. Check for deadlines in the agreement, and act promptly;
  3. Consider having an attorney review the severance offer; and
  4. Make sure they understand what they are giving up in exchange for the severance benefits.

Although not specifically discussed by the EEOC, it is often possible for an employee who has been laid off to negotiate additional severance benefits, or to otherwise improve the terms of their severance offer. You should consider meeting with an experienced employment lawyer in your area if you have been laid off or otherwise fired and are hoping to enhance your severance package, or if you need help understanding the severance agreement and the important rights you may be giving up if you sign it.

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If you have experienced workplace discrimination, harassment, or retaliation, a breach of your contract, or another violation of your employment law rights, you might want to meet with an experienced employment lawyer to discuss your employment law rights. But what should you bring to your initial consultation with an employment lawyer? The answer varies depending on the type of case you have. For example, someone with a case would probably want to bring different documents to the meeting than someone who is looking to enhance a severance offer. The following are some of the most important documents a client might want to bring to the first meeting with an employment lawyer.

Chronology or Timeline

In most cases, it is helpful to prepare a chronology or timeline of the relevant events for your employment lawyer. Generally, the chronology should be brief — in most instances between 1 and 3 pages. It should list the most important events relating to your employment issue, and identify the names and job titles of the people involved in those events. When possible, the chronology should provide the dates of the key events, and ideally should be in chronological order.

Employment Contract or Offer letter

If you have a written or an offer letter, you should bring a copy of it to your initial consultation.

Employee Handbook

If you have a copy of your company’s employee handbook, or copies of relevant employment policies, you should also bring them with you because they are often relevant to employment law cases.

Key Documents Supporting Your Legal Claims

You should also bring the key documents that you believe support your legal claim. For example, in a sexual harassment case you should bring any documents that show that you were harassed, such as harassing emails, memos, or pictures. Likewise, in a discrimination case you should bring documents that help prove you have been the victim of unlawful discrimination.

However, you should NOT bring any documents that contain anyone else’s (including your employer’s) confidential information, trade secrets, proprietary information, financial information, health information, or information that may be subject to the attorney-client privilege. Likewise, you should not bring any documents that were not intended to be provided to you, such as documents sent to you by mistake, that you took without the owner’s permission, or that someone else could reasonably question whether you should have them in your possession. To the extent you have any such documents, please talk to us before you bring them to us.

Documents or Information About Your Economic Losses

If you have experienced an economic loss, such as lost salary, commissions, or bonuses in a wrongful termination case, you should bring documents or information that show your economic loss.

If you have been fired and were offered a severance agreement, then you should bring a copy of it with you to your initial consultation. You should also bring a copy of the company’s severance policy if you have it.

Other Documents You Think May be Helpful

It usually does not hurt to bring additional documents that you think will help your case, as long as you can find the most important documents, like the ones described above, relatively easily. However, that does not mean your lawyer will want or need to review those documents during your initial consultation. Remember, the purpose of the consultation is to get an overview and initial assessment of your case.

An Open Mind

Perhaps the most important thing to bring to an initial consultation with an is an open mind. For example, many clients go to an employment attorney wanting to sue right away. While that might be the right thing to do in some cases, there are often other options to consider before suing, such as trying to negotiate a severance package or exploring a settlement before suing.

Note: It usually is not a problem if you do not have some, or even any, of the documents listed above. While these documents can be helpful, you do not necessarily need any particular document to pursue an employment law case.

If you work in New York or New Jersey, then contact Rabner Allcorn Baumgart & Ben-Asher for more information about your employment law rights, or to schedule an initial consultation with an experience employment lawyer.

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