Thursday, February 4, 2016

What GCs Need to Know About Settling Employment Claims

As we noted in a recent post on another topic, most of the lawyers we know who serve as general counsel are stretched pretty thin.  It’s just not possible for them to become expert in all the areas of law they encounter. Nevertheless, they need enough information to allow them to be effective managers of legal risk.  As HR professionals and employment lawyers know, settling employment claims – which falls squarely within the responsibilities of general counsel – can get complicated, and has to be done correctly in order to accomplish its goal of solving a problem and eliminating further risk.
Here are some important considerations that GCs should keep in mind whenever an employment claim is settled:
  1. Are statutory claims being resolved? The essence of most employment settlements, from the employer’s perspective, is the release of claims that the employee must provide in order to receive severance or other consideration. Many of the federal and state laws that govern the employer-employee relationship have provisions related to settlement of claims.  In some cases, statutory claims can’t be released at all, and in others, statutory or regulatory language controls what a release of claims has to say, how and when it has to be presented, and whether or not it can be rescinded after it is signed by the employee. It’s essential to review the specific requirements of each and every statute that gives rise to claims that the employer wants released.  Failure to do so can mean that the employer pays the employee and ends up with an unenforceable release.
  2. Is an enforcement agency involved?  Some employment claims begin when an administrative complaint or charge is filed with the Department of Labor, the Equal Employment Opportunities Commission, the National Labor Relations Board, or a comparable state agency.  Once an agency is involved, it may have a responsibility, or may be able to choose, to involve itself in the resolution of the claim.  Some agencies are allowed by their enabling laws to seek their own remedies or impose conditions in a settlement. Some statutes require that a charge or complaint be withdrawn from the agency process by the employee before the agency can close the matter.  GCs should not settle an employment claim without checking on agency involvement and, if an agency is involved, determining what needs to be done to end the agency’s process.
  3. Are other contracts or agreements involved?  It can be easy to overlook a twenty year old employment agreement, a non-compete, a stock option or bonus incentive agreement, or even a collective bargaining agreement when trying to resolve an employment claim.  Make certain that all legally binding agreements between the employer and employee, no matter how old, are reviewed, considered, and referenced in the current agreement and release.
  4. Is there even a hint of coercion?  Statutory and agency requirements aside, judges and juries can be very unfriendly towards a settlement agreement or release of claims if it appears to have been coerced in any way. Employers are usually the ones who draft and present settlement agreements, and agreements are often presented at a time when the employee has just been terminated.  Given the perceived or actual imbalance of bargaining power, it’s critical for GCs to make sure that every settlement is, and appears, untainted by coercive tactics.  We favor language that states that the employee has had ample opportunity to consider the terms and consult with counsel, and beyond putting that language in the agreement, we favor actually giving the employee plenty of time, and encouraging consultation with an attorney, before the settlement is finalized.
  5. Are settlement documents easy to understand? The EEOC, among other regulatory authorities, has issued guidance on the importance of “plain English” in settlement documents. Whether required by regulatory guidance or not, understandable language in a settlement agreement and release is important.  The chances that an agreement and release will be valid and enforceable if challenged increase if the language is clear. 
  6. Are you prepared to abide by the terms of the agreement?  We have seen more than a few instances in which a GC stopped thinking about the settlement of an employment claim as soon as the ink was dry on the release.  That’s understandable, given the pace of a GC’s job, but it can be risky.  The promises made in the agreement – such as the payment of money, the preparation of a letter of reference, or maintaining confidentiality – are important and need to be carried out.  Failure to do so, even if it’s just an oversight, can undo a settlement agreement.
Every employment claim is different and every settlement negotiation presents its own challenges, so a GC may need to know and do more than we’ve listed here in any given situation.  If these considerations are kept in mind, however, they can form a strong framework for the settlement of most employment claims.

Posted by Judy Langevin