To Be or Not to Be In Severance Agreements

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1 To Be or Not to Be In Severance Agreements Fourth Annual Employment Law Summit Prince William SHRM and Vanderpool Frostick & Nishanian PC October 2, 2015 Presented by: Kristina Keech Spitler, Esq. Copyright 2015 Kristina Keech Spitler All rights reserved. 1

2 DISCLAIMER This presentation and information is designed to provide general information, is not intended to constitute legal advice and should not be utilized as a substitute for professional services in specific situations. If legal advice or other expert assistance is required, the services of a professional should be sought. Copyright 2015 Kristina Keech Spitler. All rights reserved. 2

3 Kristina Keech Spitler, Esq. 3 Kristina Keech Spitler, Esq. is a shareholder with the law firm, Vanderpool, Frostick & Nishanian, P.C., where she represents and advises businesses on business and employment issues and litigation including representing employers in court, in mediation, and before administrative agencies such as EEOC, assisting clients comply with laws on such issues as discrimination, disabilities and accommodations, wage and hour, leave, hiring and firing, and discipline. In addition, her practice includes drafting and updating handbooks and policies, providing management and employee training, performing internal investigations, and counseling on matters relating to breach of agreements, non-competes and restrictive covenant agreements. Ms. Spitler is a highly rated speaker and trainer on employment law issues. Ms. Spitler has been recognized as one of one of Virginia s Most Influential Women by Virginia Lawyers Media and as one of Virginia s Legal Elite in Labor/Employment Law by Virginia Business Magazine. Contact Ms. Spitler at kspitler@vfnlaw.com or (703) Copyright 2015 Kristina Keech Spitler. All rights reserved. 3

4 Brendan Francis Cassidy, Esq. Brendan Francis Cassidy, Esq. is an associate with the law firm, Vanderpool, Frostick & Nishanian, P.C., where he represents businesses and individuals on employment and business related matters including non-competes and restrictive covenant agreements, wage and hour issues under the Fair Labor Standards Act, Title VII issues, disabilities and accommodation under the Americans with Disabilities Act, Family and Medical Leave Act, and other legal issues facing employers. In addition, his practice includes drafting and updating handbooks and policy manuals, management and employee training, and drafting executive, independent contractor, and severance agreements. Contact Mr. Cassidy at or (703) Copyright 2015 Kristina Keech Spitler. All rights reserved. 4

5 Overview To (somewhat liberally) quote William Shakespeare s Hamlet: To be, or not to be [in a severance agreement], that is the question. Copyright 2015 Kristina Keech Spitler. All rights reserved. 5

6 Big Picture on Severance Agreement Drafting an enforceable severance agreement at the end of an employee s relationship can be challenging. Recently, it has become even more challenging as the EEOC and the NLRB have been refocusing their enforcement efforts on them. They are closely scrutinizing employer severance agreements to ascertain whether the agreements contain language in violation of law or public policy. We will take some time to review what should be and what should not be in a severance agreement and how the courts have ruled on the EEOC and NLRB s lawsuits challenging provisions in severance agreements. Copyright 2015 Kristina Keech Spitler. All rights reserved. 6

7 To Be In A Severance Agreement Copyright 2015 Kristina Keech Spitler. All rights reserved. 7

8 Consideration Severance Agreements must offer consideration in exchange for an employee performing or not performing an act. Consideration: Something of value given by both parties to a contract that induces them to enter into the agreement to exchange mutual performances. - West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved. Copyright 2015 Kristina Keech Spitler. All rights reserved. 8

9 Consideration Employer must offer something of value to the employee to which he/she is not already entitled. - i.e., additional money, pay extra period of time for a benefit or benefits, good reference, etc. Employer offering Employee something he/she is already entitled to will not constitute consideration. - i.e., wages already earned, pay for unused vacation if employee already entitled to it pursuant to policies or law, etc. Copyright 2015 Kristina Keech Spitler. All rights reserved. 9

10 Consideration In return for Employee receiving the thing/s of value offered by the Employer, Employee offers something of value that the Employer deems valuable. - Employee s waiver of claims is often one of the most important things the employer puts in a severance agreement. Copyright 2015 Kristina Keech Spitler. All rights reserved. 10

11 Consideration Failure of Employer to give adequate consideration will result in severance agreements being unenforceable against the Employee. - i.e., Employee s waiver of claims against the Employer is not enforceable and Employee may still pursue claims against the Employer. Copyright 2015 Kristina Keech Spitler. All rights reserved. 11

12 Knowing and Voluntary Employee must knowingly and voluntarily consent to waive right to bring claim/s against Employer. Copyright 2015 Kristina Keech Spitler. All rights reserved. 12

13 Knowing and Voluntary Courts and EEOC often look to totality of the circumstances in determining if a waiver is knowing and voluntary. The Agreement is understandable by employee. Employee s knowledge and sophistication level. Employee had consulted with an attorney or had been advised to and had opportunity to consult with an attorney. Copyright 2015 Kristina Keech Spitler. All rights reserved. 13

14 Knowing and Voluntary EEOC guidance suggests that Employers include a provision that either encourages the employee to seek advice of counsel or states that Employee either has his/her own counsel or has had the opportunity to consult with their own counsel when determining whether a waiver was knowing and voluntary. In a union context, include language stating that the employee had the opportunity to consult with their union. Copyright 2015 Kristina Keech Spitler. All rights reserved. 14

15 Sufficient Time Valid Waivers must provide employees with sufficient time to consider the offer. Copyright 2015 Kristina Keech Spitler. All rights reserved. 15

16 Sufficient Time Waivers under ADEA/OWBPA for Employees who are 40 years old and older, the Employer must provide at least 21 days for the Employee to consider the offer (45 days for group layoffs) in order for the waiver to be valid. Employer must also provide Employee with 7 days to revoke his/her signature on the severance agreement. Copyright 2015 Kristina Keech Spitler. All rights reserved. 16

17 Clear and Conspicuous Severance agreements must be drafted in a manner that is easily understood. Employee should be able to understand keeping in mind that different employees have different levels of comprehension. Copyright 2015 Kristina Keech Spitler. All rights reserved. 17

18 Not To Be In A Severance Agreement Copyright 2015 Kristina Keech Spitler. All rights reserved. 18

19 EEOC Guidance The EEOC s guidance states that severance agreements should not contain jargon or misleading information. Copyright 2015 Kristina Keech Spitler. All rights reserved. 19

20 EEOC Guidance An employer s severance agreement should not contain language that restricts an employee s ability to participate in an EEOC investigation such as: - Prohibitions on testifying or assisting in an investigation with EEOC or an individual. Copyright 2015 Kristina Keech Spitler. All rights reserved. 20

21 EEOC Guidance - Provisions in which employee agrees to withdraw EEOC charge as condition of agreement (unless as part of EEOC mediation). Copyright 2015 Kristina Keech Spitler. All rights reserved. 21

22 EEOC Guidance Employers should not include language stating that waivers apply to claims that could arise after the waiver is executed. Copyright 2015 Kristina Keech Spitler. All rights reserved. 22

23 Disparate Impact Gerner v. County of Chesterfield, 674 F.3d 264, 2012 (4th Cir. Va. 2012) The Fourth Circuit found that former employees can bring a claim under Title VII for severance agreements which are less favorable to employees in a similar position. The court found that a female employee could proceed with her Title VII claim where male comparators were offered more favorable severance agreements than the one she rejected. Copyright 2015 Kristina Keech Spitler. All rights reserved. 23

24 Recent NLRB Enforcement Efforts Quicken Loans Inc. and Lydia E. Garza, 2013 The NLRB found that an employer s proprietary/confidential information and nondisparagement provisions unlawfully violated the National Labor Relations Act by chilling their exercise of Section 7 rights. Copyright 2015 Kristina Keech Spitler. All rights reserved. 24

25 NLRB Quicken Loans Inc. and Lydia E. Garza, 2013 (cont.) The Administrative Law Judge/NLRB found that employees could reasonably construe broad language in an agreement as restricting their right to engage in concerted activity. Employees could construe the confidentiality and proprietary provision as restricting their Section 7 right to discuss their wages, benefits, and the addresses and telephone numbers of other employees; and the nondisparagement clause as restricting their limited Section 7 rights to criticize their employer. Copyright 2015 Kristina Keech Spitler. All rights reserved. 25

26 NLRB Employers should not include broad language in confidentiality or non-disparagement provisions which might be construed as restricting employee s Section 7 rights. Employers should consider narrowly tailoring the language to identify the type of information that is confidential and protected as well as what is considered disparagement. Copyright 2015 Kristina Keech Spitler. All rights reserved. 26

27 NLRB Employers should avoid language similar to the examples below, as the NLRB has found the following can be reasonably construed to restrict employees Section 7 rights: [Y]ou shall not disclose [it] to any person, business or entity. The Agreement defines proprietary and confidential information as non-public information relating to the Company s business, personnel all personnel lists, personal information of coworkers personnel information such as home phone numbers, cell phone numbers, addresses and addresses. Copyright 2015 Kristina Keech Spitler. All rights reserved. 27

28 NLRB Language to avoid (cont.) Employees cannot discuss fellow employees, union representatives, the wages and benefits they receive, names, wages, benefits, addresses and telephone numbers of other employees. You agree that you will not (nor will you cause or cooperate with others to) publicly criticize, ridicule, disparage or defame the Company or its products, services, policies, directors, officers, shareholders, or employees, with or through any written or oral statement or image (including, but not limited to, any 45 statements made via websites, blogs, postings to the internet, or s and whether or not they are made anonymously or through the use of a pseudonym). Copyright 2015 Kristina Keech Spitler. All rights reserved. 28

29 Recent EEOC Enforcement Efforts EEOC v. CVS Pharmacy, Inc. EEOC alleged that CVS s severance agreements deterred employees from filing charges of discrimination, and interfered with their right to communicate voluntarily with the EEOC and other Fair Employment Practice Agencies. According to the EEOC, the severance agreements covenant not to sue provision, prohibited departing employees from initiating or filing a complaint or proceeding on any released claims, and would interfere with employees statutorily protected rights. Copyright 2015 Kristina Keech Spitler. All rights reserved. 29

30 Recent EEOC Cases EEOC v. CVS Pharmacy, Inc. (cont.) The EEOC s claims were ultimately dismissed without a ruling on the EEOC s arguments. Instead, the court ruled that the EEOC could not bring the suit as it had not engaged in conciliation. However, in a footnote the Judge noted that it was not reasonable to construe the agreement as excluding the employee from proceeding with an EEOC charge because the agreement contained a caveat stating that the release did not waive any rights the employee could not lawfully waive and the agreement did not prohibit the employee from participating in an investigation. Copyright 2015 Kristina Keech Spitler. All rights reserved. 30

31 Recent EEOC Cases EEOC v. CVS Pharmacy, Inc. (cont.) Moreover, the Judge noted that even if the agreement explicitly banned filing charges, such provision would be unenforceable and could not constitute resistance to the Act. Although this matter was not decided on the merits and the statement was only in a footnote, it offers guidance on what employers should include in a severance agreement as a carve-out Copyright 2015 Kristina Keech Spitler. All rights reserved. 31

32 Recent EEOC Cases However, the EEOC is attempting to use a recent Southern District of Florida ruling in its suit over the severance agreement in the CVS case. In the CVS case, the court had ruled that the EEOC could not bring a suit as it had not engaged in conciliation. The EEOC is attempting to rely on EEOC v. Doherty Enterprises, Inc., which found that the EEOC can initiate a charge without conciliation in some circumstances, and rejected the CVS court s holding. Copyright 2015 Kristina Keech Spitler. All rights reserved. 32

33 Recent EEOC Cases EEOC v. CollegeAmerica Denver, Inc., The EEOC brought another suit against an employer for providing a broad severance agreement waiving all claims against the employer Demonstrates the EEOC s commitment to bringing claims against employers with broad severance agreements, and highlights the importance of clarifying that any waiver of claims does not include statutorily protected activity. However, the court partially dismissed the matter late last year, again without addressing the merits (but the court did not dismiss the retaliation claim so the court could address the issue in the future). Copyright 2015 Kristina Keech Spitler. All rights reserved. 33

34 Recent EEOC Cases EEOC v. Baker & Taylor, Inc. The complaint in the CVS matter is also not the first high profile case in recent years in which the EEOC targeted severance agreements which could interfere with employees rights to file a charge. In a similar suit in 2013, the EEOC alleged that an employee s conditional receipt of severance pay on the basis of signing a broad waiver, interfered with the employee s right to file a charge with the EEOC or Fair Employment Practice Agencies. In a consent decree, the company agreed to add language stating that employees retain the right to recover any appropriate relief. Copyright 2015 Kristina Keech Spitler. All rights reserved. 34

35 FMLA Waiver Employers in the Fourth Circuit can include waivers for past FMLA claims in severance agreements Initially the Fourth and Fifth Circuit were split over whether an ambiguous DOL regulation permitted a release of FMLA claims in severance agreements. However, the DOL soon clarified the ambiguous regulation, and in an unpublished decision the Fourth Circuit found that waivers for past FMLA claims (but not FMLA rights) are permissible under the FMLA. Whiting v. Johns Hopkins Hosp., 2011 U.S. App. LEXIS 5199 (4th Cir. Md. 2011). Copyright 2015 Kristina Keech Spitler. All rights reserved. 35

36 FLSA Waiver Employees may not waive the right to recover damages due under the Fair Labor Standards Act (FLSA) and employers/employees may not privately settle wage and hour issues unless approved by a court or DOL. Copyright 2015 Kristina Keech Spitler. All rights reserved. 36

37 Taxation of Severance Payments Copyright 2015 Kristina Keech Spitler. All rights reserved. 37

38 Taxation of Severance United States v. Quality Stores, Inc., 134 S. Ct (2014). The United States Supreme Court recently held that severance payments made to employees terminated against their will are taxable under FICA. Quality Stores had terminated thousands of employees as part of a layoff and initially withheld FICA from the employee s severance payments, but later requested FICA refunds. Copyright 2015 Kristina Keech Spitler. All rights reserved. 38

39 Taxation of Severance United States v. Quality Stores, Inc. (cont.) The Supreme Court reversed a holding by the Sixth Circuit, and found that the definition of wages under FICA encompassed severance payments, and that severance payments do not fall within the narrow definition of exemptions under FICA. Accordingly, severance payments are generally subject to FICA taxes and appropriate amounts withheld by the employer. Copyright 2015 Kristina Keech Spitler. All rights reserved. 39

40 Taxation of Severance United States v. Quality Stores, Inc. (cont.) However, the Court did not find that all severance payments are subject to FICA taxation. The Court noted that the ruling does not reach taxation of state unemployment benefits and these may still be exempt from FICA. Copyright 2015 Kristina Keech Spitler. All rights reserved. 40

41 Conclusion Provisions To Be Included In Severance Agreement: Consideration Voluntary consent Clear language Sufficient time Opportunity to consult with attorney or union Language on statutorily protected rights Copyright 2015 Kristina Keech Spitler. All rights reserved. 41

42 Conclusion Provisions Not To Be Included In Severance Agreement: Confusing language Anything that could create disparate impact Broad language which could restrict Section 7 rights FLSA waiver Copyright 2015 Kristina Keech Spitler. All rights reserved. 42

43 Let s Play a Game to Practice What We Know YOU BE THE JUDGE! Copyright 2015 Kristina Keech Spitler. All rights reserved. 43

44 Thank You Kristina Keech Spitler, Esq. (703) Copyright 2015 Kristina Keech Spitler. All rights reserved. 44

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