SETTLEMENT AGREEMENTS IN EMPLOYMENT DISPUTES & LITIGATION

Transcription

1 SETTLEMENT AGREEMENTS IN EMPLOYMENT DISPUTES & LITIGATION First Run Broadcast: April 27, :00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes) This program will provide you with a real-world guide to planning, negotiating and drafting settlement agreements in employment disputes. It will address settlements arising from clams of harassment, discrimination and retaliation as well as claims arising from the economic terms of employment contracts, including disputes over discretionary bonuses and sales commissions. The program will cover how mutual releases of liability depend on the nature of the underlying claim harassment and discrimination versus economic terms of an employment agreement and the crucial task of defining the scope of these releases. It will also outline practical steps lawyers can take to enhance the ultimate enforceability and effectiveness of these agreements to minimize a client s risk after the agreements are executed. Practical drafting of settlement agreements in employment disputes Financial terms of settlement how payments are structured and taxed Waivers of liability and mutual releases settlements based on harassment/discrimination v. contractual disputes Privacy non-disclosure and non-disparagement agreements Handling of evidence gained in employment investigations Practical steps to increase enforceability & decrease post-execution dispute Speaker: Shannon M. Bell is a member in the Denver office of Kelly & Walker, LLC, where she litigates a wide variety of complex business disputes, construction disputes, fiduciary claims, employment issues, and landlord/tenant issues. Her construction experience extends from contract negotiations to defense of construction claims of owners, HOAs, contractors and tradesmen. She also represents clients in claims of shareholder and officer liability, piercing the corporate veil, and derivative actions. She writes and speaks on commercial litigation, employment, discovery and bankruptcy topics. Ms. Bell earned her B.S. from the University of Iowa and her J.D. from the University of Denver.

2 VT Bar Association Continuing Legal Education Registration Form Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT Fax: (802) PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name Middle Initial Last Name Firm/Organization Address City State ZIP Code Phone # Fax # Address Settlement Agreements in Employment Disputes & Litigation Teleseminar April 27, :00PM 2:00PM 1.0 MCLE GENERAL CREDITS VBA Members $75 Non-VBA Members $115 NO REFUNDS AFTER April 20, 2017 PAYMENT METHOD: Check enclosed (made payable to Vermont Bar Association) Amount: Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # Exp. Date Cardholder:

3 Vermont Bar Association CERTIFICATE OF ATTENDANCE Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: April 27, 2017 Seminar Title: Location: Credits: Program Minutes: Settlement Agreements in Employment Disputes & Litigation Teleseminar - LIVE 1.0 MCLE General Credit 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

4 SETTLEMENT AGREEMENTS IN EMPLOYMENT DISPUTES & LITIGATION SHANNON BELL (720)

5 I. INTRODUCTION Settlement agreements in the context of employment disputes are multifaceted. They can be emotional for the employee and concerning for the employer in protecting their business interests. Care must be given to assure the essential elements are addressed within the agreement, that various Federal and state laws are complied with, and that the employee is given the appropriate amount of time to consider the agreement if certain rights are affected. Employers and employees must also consider the tax consequences of the settlement and the effect on unemployment benefits. This presentation will cover some of the broader issues that are applicable to most employment settlements and provide practice pointers when drafting and negotiating an employment settlement to maximize a fully enforceable agreement that provides finality to all parties involved. II. PRACTICAL DRAFTING OF SETTLEMENT AGREEMENTS IN EMPLOYMENT DISPUTES A. PURPOSE: to avoid liability as a result of the termination of the employment relationship B. ESSENTIAL ELEMENTS (1) Consideration (2) Release clause (3) Procured without coercion 1. Consideration - must be something that the employee was not entitled to receive at the time of his/her separation from employment - Severance pay - Health and/or Dental benefits O COBRA O ACA - Stock Options 1

6 - Life Insurance - Disability Insurance - Bonus - Company car - Assistance with new employment or transition 2. Release Clause - A release provision sets forth the employee's promise not to sue the employer for any claim arising out of or in the course of the employment relationship. Want to extend the release to all affiliates, subsidiaries, etc. of the employer. Because a release must be knowingly entered into, it is helpful to detail the types of claims that are being waived. Issues to consider when drafting the release clause: o How broad is the release o Is the release mutual o What claims cannot be released under federal or state statutes Workers compensation/ada issues Unemployment o If applicable, have all requirements of OWBPA been met o Should the release explicitly cover all claims for attorney s fees o Have any claims not been released Why How to handle If so, should they be addressed elsewhere o Should there be a separate release for claims under ERISA o Can the release cover future claims What about "present effects of past acts" language o Who is being released Should the release cover the spouse or significant other 3. Knowing and Voluntary - A release will not be valid unless the employee voluntarily entered into the agreement and knows what they are agreeing to. Should allow and/or consider: - Sufficient time to review the settlement agreement and release - Ability to negotiate terms 2

7 - Ability to review terms with counsel of their choosing - Is the settlement drafted in plain English or legalese - Background of the employee In determining whether a release was knowing and voluntary courts have used a totality of the circumstances test. See, e.g. Borman v. AT&T Communications, Inc., 875 F.2d 399, 403 (2d Cir.), cert. denied, 493 U.S. 924 (1989). C. OTHER CONSIDERATIONS 1. Accrued Vacation, PTO, Reimbursable Expenses Must determine whether vacation/pto are vested Company policy on reimbursable expenses 2. Attorney s fees Consider whether to pay the departing employee's attorneys' fees for negotiating the Settlement Agreement 3. Trade Secrets, Company Property, Customer Lists 4. Unemployment Benefits Employees often want the Settlement Agreement to specifically state that the employer will not contest the departing employee's application for unemployment benefits Employer cannot make employee waive their right to seek unemployment benefits 5. Factors to consider for Unemployment Benefits: - Does the granting of severance pay affect eligibility for unemployment benefits? - Does it make a difference under state unemployment statutes or regulations if the severance pay is paid in a lump sum as opposed to periodic payments or salary continuation. - What will be the termination date for unemployment benefits? 3

8 - Will the employer contest the departing employee's application for unemployment benefits? - What will the employer say to the unemployment agency regarding the termination? - Will the employer contest an appeal of denial of benefits? III. FINANCIAL TERMS OF SETTLEMENT HOW PAYMENTS ARE STRUCTURED AND TAXED Three main types of settlement payments: 1. Lump sum payment 2. Salary continuation 3. Periodic payments over a certain period of time Issues that should be addressed when offering severance pay include: - Is the severance pay taxable as wages, what rate? - How will the payment of severance pay affect eligibility for unemployment compensation? - What is the risk that the employer could default on the payment of severance pay, and should that risk be addressed in the Settlement Agreement? - Should severance pay be considered as "earnings" when calculating an "employer match" under a 401(k) plan? - Should severance pay be included as earnings in computing pension eligibility. Issues that arise concerning attorney fees if the employer pays for an employee to have an attorney participate in reviewing and/or negotiating settlement: Are paid attorney s fees taxable income to the employee? If the employer pays the employee's attorney's fees, should the attorney be given an IRS Form 1099 by the employer? 4

9 IV. WAIVERS OF LIABILITY AND MUTUAL RELEASES SETTLEMENTS BASED ON HARASSMENT/DISCRIMINATION v. CONTRACTUAL DISPUTES In 1997 the U.S. Equal Employment Opportunity Commission (EEOC) issued policy guidance clarifying that the right of an individual to file a charge of employment discrimination with the Commission cannot be waived. The guidance also states that an individual's right to testify, assist, or participate in a Commission proceeding cannot be waived. However, the EEOC stated its nowaiver position is fully consistent with the Commission's strong support of voluntary agreements to resolve employment discrimination disputes. For example, while parties who are involved in disputes cannot agree to keep evidence of discrimination from the EEOC, they will otherwise have the full benefit of settlement agreements, so long as those agreements are valid under applicable law. In 2016 there were 91,503 EEOC charge filings. Resolution of matters with EEOC claims and/or components require additional considerations than a straight forward breach of contract settlement. TYPE 2016 EEOC Charges by Type Retaliation 45.9% Race 35.3% Disability 30.7% Sex 29.4% Age 22.8% National Origin 10.8% Religion 4.2% Color 3.4% Equal Pay Act 1.2% GINA 0.3% PERCENTAGE 5

10 Retaliation Race Disability Sex Age National Origin Religion Color Equal Pay Act GINA 1. Waiver of rights under Title VII, the ADA, or the EPA must be knowing and voluntary The rules regarding whether a waiver is knowing and voluntary depend on the statute under which suit has been, or may be, brought. The rules for waivers under the Age Discrimination in Employment Act are defined by statute the Older Workers Benefit Protection Act (OWBPA). Under other laws, such as Title VII, the rules are derived from case law. In addition to being knowingly and voluntarily signed, a valid agreement also must: (1) offer some sort of consideration, such as additional compensation, in exchange for the employee s waiver of the right to sue; (2) not require the employee to waive future rights; and (3) comply with applicable state and federal laws. 6

11 2. Age Discrimination. The Age Discrimination in Employment Act (ADEA) only forbids age discrimination against people who are age 40 or older. It does not protect workers under the age of 40, although some states do have laws that protect younger workers from age discrimination. Waivers of ADEA Rights The ADEA, as amended by the OWBPA, sets out specific minimum standards that must be met in order for a waiver to be considered knowing and voluntary and, therefore, valid. Among other requirements, a valid ADEA waiver must: be in writing and be understandable; specifically refer to ADEA rights or claims; not waive rights or claims that may arise in the future; be in exchange for valuable consideration in addition to anything of value to which the individual already is entitled; advise the individual in writing to consult an attorney before signing the waiver; and provide the individual with a certain amount of time to consider the agreement before signing: For individual agreements, at least 21 days, For "group" waiver agreements, at least 45 days, For settlements of ADEA discrimination claims, a "reasonable" amount of time. 7

12 3. Obligation to Return Consideration if an EEOC Claim is filed - Under the ADEA, an employee is not required to return severance pay -- or other consideration received for signing the waiver -- before bringing an age discrimination claim. Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998) (holding that because the release failed to comply with OWBPA, it could not bar the employee s ADEA claim even if the employee retained the monies she received in exchange for the release). - Under Title VII, the ADA, or the EPA, however, the law is less clear. o Some courts conclude that the validity of the waiver cannot be challenged unless the employee returns the consideration, See, e.g., Blackwell v. Cole Taylor Bank, 152 F. 3d 666 (7th Cir. 1998) (noting that employees bringing non-age claims might still have to tender back their consideration) and Hampton v. Ford Motor Co.., 561 F.3d 709 ( 7th Cir. 2009)(noting that because no exception to the tender back rule exists in this Title VII case, employee must return or least offer to return the consideration she received before challenging the validity of the waiver) o Other courts apply the ADEA s no tender back rule to claims brought under Title VII and other discrimination statutes and allow employees to proceed with their claims without first returning the consideration. Rangel v. El Paso Natural Gas Co., (holding that because the primary purpose of the ADEA and Title VII is to make it easier for an employee to challenge discrimination, employees bringing claims under Title VII should not have to return their severance pay before filing suit). 4. Restriction on Rehiring Many settlements contain language that terminated employee must never again apply for employment with the company, its successors and assigns. Employers should be aware that such clauses may be unlawful if applied to a person protected by the Age Discrimination in Employment Act (ADEA), 29 U.S.C. 621 et seq. 8

13 V. PRIVACY NON-DISCLOSURE AND NON-DISPARAGEMENT AGREEMENTS A. Confidentiality Clauses can encourage better settlement for the employee and protect the company from future claims from other employees 1. Considerations Mutuality Ability to discuss with family members Direct a company officer to control access to information Who is bound by the confidentiality clause Liquidated damages for violation B. Non-Disparagement Agreements Company agrees not to disparage employee Employee agrees not to disparage company Who is subject to the clause Co-workers Supervisors only Spouses/family - Enforcement Liquidated damages Return of some or all of the consideration Company control over employees and/or former employees C. References Issues that arise with respect to reference provisions include: Who is responsible to handling the reference; Statements inconsistent with the letter of reference; Rehire inquiries; Verbal references; and, What is put in the employee s file. 9

14 VI. HANDLING OF EVIDENCE GAINED IN EMPLOYMENT INVESTIGATIONS A. Reasons for an Internal Investigation A workplace investigation is conducted when there is credible information there may have been significant wrongdoing, misconduct or ethical lapses. An employer may want an investigation even without specific allegations if there is a concern about wrongdoing in the company. Investigations, if done properly, are used to determine, fully and credibly: - What happened with respect to a particular incident - Did suspected and/or inappropriate conduct occur - The circumstances surrounding the incident(s) - Who was involved - Was there a violation of law or policy B. Who Should Conduct the Investigation 1. Impartial and Competent - Investigators must be free from actual or apparent bias or conflict of interest. 2. Can be in internal investigator or a third-party investigator Careful with in-house investigators - In-house investigator should not investigate the conduct of his or her superiors. - In-house investigators who witnessed the underlying conduct should not participate in the workplace investigation 3. Use of Attorneys - Not always subject to attorney-client privilege or workproduct doctrine 10

15 4. Quality and Competence - Investigator must have the experience and the expertise to conduct a credible investigation - Understand how to interview witnesses - Understand how to manage documents and other records - Understand how to maintain any applicable privileges to the extent possible - Must be fully informed about company policies, procedures and company history - Must know the management controls and strategies employed by the relevant business unit - Must be able to contribute to the discussion of risks to the business, highlighting potential likelihood or severity of risk areas C. Confidentiality 1. Every aspect of an investigation should be kept confidential. 2. The need for confidentiality begins when the report is received. 3. Maintaining confidentiality is critical to the integrity of an investigation. Consequences for failing to ensure that confidentiality is maintained include: o Damage to subject matter s reputation; o Damage to the reporting party(ies) reputation; o Impact on the success of the investigation; o Loss of evidence, cover-up of misconduct; o Damage to the employer s reputation; o Employer s defense to any legal action associated with the matter could be compromised; o Potential retaliatory action for disclosure of the information. 11

16 The fact that an investigation is underway, its subject matter, the processes followed, the materials gathered and, especially, the results of the investigation must always be treated confidentially. These confidentiality obligations continue past the date of an investigation and individuals involved must be careful about using or discussing the details of the investigation if such information could identify the person or the part of the company involved. D. Handling Information Gathered from the Investigation 1. Documents should be safeguarded against inadvertent disclosure. - keep them in a secure place - have a retention and destruction policy - limit individuals with access to the information E. Good Article on Investigations law/meetings/2009/ac2009/107.authcheckdam.pdf 12

17 VII. PRACTICAL STEPS TO INCREASE ENFORCEABILITY & DECREASE POST- EXECUTION DISPUTE A. Consider ADR Since 1990, Congress has twice reaffirmed the important role of ADR in the area of employment discrimination with the Americans with Disabilities Act in 1990 and a year later in Section 118 of the Civil Rights Act of Gilmer v. Interstate/Johnson Lane, 500 U.S. 20, 111 S.Ct (1991), refusing to invalidate an arbitration clause in employment agreement - Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 121 S. Ct. 1302, 149 L. Ed. 2d 234 (2001), holding that except for transportation workers, such as seamen or railroad workers, the FAA covers all contracts of employment and that the Act may be used to compel arbitration of employment-related claims - But note: Equal Employment Opportunity Comm n v. Waffle House, Inc., 534 U.S. 279, 122 S.Ct. 754 (2002), the Supreme Court held that because the EEOC is not a party to an arbitration agreement, it is not bound by its terms B. Practical Steps 1. Comply with the provisions 2. Pay on time and complete all payments 3. Make payments contingent on receipt of signed and returned Agreement after all wait periods have expired Oubre v. Entergy Operations, Inc., 118 S. Ct. 838 (1998). Release violated the OWBPA because it failed to provide the 21-day consideration period. Employee collected severance package then sued employer. Release did not bar all claims because it failed to comply with OWBPA. 13

18 4. Encourage the employee to meet with counsel of their choosing 5. Be fair 6. Don t discuss the agreement or negotiations with anyone that is not necessary to the matter C. Enforcement 1. Forum Selection - If the Agreement is silent on the law to be applied, state law will determine whether the former employee can receive either compensation for the breach, or damages relating to claims underlying the release 2. Attorney s Fees for prevailing party 3. Liquidated Damages Thank you for listening. If you have any follow up questions, please feel free to contact me. SHANNON BELL KELLY & WALKER LLC 1512 LARIMER STREET, SUITE 200 DENVER, COLORADO SBELL@KELLYWALKERLAW.COM (720)