Release Signed by Employee on Date of Termination Deemed Ineffective

September 2013Alerts Labor & Employment Alert

On August 26, 2013, in Carey v. NMC Global Corp., the New Jersey Appellate Division held that a release signed by an employee on his first day back from a two-month medical leave of absence created a jury question as to whether it was knowingly and voluntarily entered into. The case serves as a cautionary reminder to employers as to the need to use best practices in procuring a release from a terminated employee.

The Facts

In the case, Carey, a high school graduate, and dispatcher, went on an authorized two-month leave of absence for pneumonia. The day Carey returned to work, he met with NMC’s office manager and vice president, who advised that he was being terminated. They provided Carey with a Separation and Release Agreement (“Agreement”). According to the plaintiff, the vice president explained to him that he could either sign the Agreement and receive two weeks’ severance, or choose not to sign it and receive nothing. Carey testified that he was given five minutes to consider the Agreement, was not encouraged to discuss the Agreement with an attorney and did not do so. Nevertheless, he initialed each page and executed the Agreement. Four days later, after discussion with an attorney, plaintiff wrote to NMC, indicating that he did not accept the terms of the severance package and requested that NMC not deposit the two weeks’ pay into his account. NMC ignored Carey’s request and deposited the funds into his account.

Carey subsequently filed an NJLAD lawsuit alleging disability discrimination and retaliation for taking medical leave. The Law Division granted NMC summary judgment, based upon the Agreement. The Appellate Division reversed.

The Law

Under the NJLAD (and Title VII), a release will be deemed valid if it is knowingly and voluntarily entered into. That determination is based upon a totality-of-the-circumstances test, consisting of the following criteria: (1) the plaintiff’s education and business experience; (2) the amount of time the plaintiff had possession of or access to the agreement before signing it; (3) the role of the plaintiff in deciding the terms of the agreement; (4) the clarity of the agreement; (5) whether the plaintiff was represented by or consulted with an attorney; (6) whether the consideration given in exchange for the waiver exceeds employee benefits to which the employee was already entitled to by contract or law; (7) whether an employer encourages or discourages an employee to consult an attorney; and (8) whether the employee had a fair opportunity to do so. Swarts v. Sherwin-Willams Co., 244 N.J. Super. 170, 176-177 (App. Div. 1990). While the employer has the burden of establishing these factors, no one factor is determinative.

The court drew the following conclusions as to these factors, as follows: (1) while plaintiff’s high school education was meager compared to others who have been deemed to execute valid releases, his fifteen plus years of work experience could compensate for the lack of a college education; (2) plaintiff’s testimony that he signed the Agreement five minutes after it was given to him and that he felt pressured to sign because the vice president was glaring at him created a genuine issue of material fact in favor of the employee as to this factor; (3) because NMC presented the Agreement to plaintiff without providing him an opportunity to negotiate, this factor resolved in favor of the employee; (4) while the release language specifically referenced the NJLAD (and other employment statutes), plaintiff’s testimony that he did not understand the release, including its title (“Separation and Release Agreement”) created a material dispute in favor of the employee; (5) plaintiff did not consult with an attorney prior to executing the release, and thus, this factor also worked in favor of the employee; (6) as to factor six, the court questioned whether two weeks’ salary was sufficient consideration for entering into the release, citing with approval cases where the employee was paid 4 weeks and $45,624.96; (7) as to factor seven, the Court explained that “the onus is on the employer to encourage the employee to consult with an attorney,” and thus, the Court found a genuine issue of material fact in that the Agreement did not recommend that plaintiff consult with an attorney and plaintiff’s supervisors did not encourage plaintiff to do so; and (8) as to the final factor, plaintiff’s testimony that the vice president was glaring at him during the termination weighed against the employer.

The Implications

In the wake of Carey, the following should be considered in drafting and offering separation agreements to employees:

  • It is critical that separation agreements be written in plain English, especially where the employee is not sophisticated. The employer may want to consider having different (2) forms of separation agreement, depending upon the sophistication of the individual signing.
  • The separation agreement should reference the specific employment statutes, both by name and legal citation.
  • The separation agreement should indicate that the employee was given a reasonable period of time to consider the agreement.
  • New Jersey employers should consider offering more than two weeks of severance.
  • Most critically, the separation agreement should indicate that the employee was encouraged to consult with an attorney prior to executing the agreement.
  • As a self-preservation measure, employers should consider providing cover letters/e-mails to employees enclosing separation agreements, which letters/e-mails specifically reference employees’ right to consult with counsel and indicate that employees are being provided a reasonable period of time to consider the agreement.
  • If the separation agreement is being provided to employees at the termination meeting (at which two employer representatives should be present), the employer should orally advise the employee that he/she has the right to consult with an attorney before signing the agreement and encourage the employee to take the agreement home to review before executing. The employer should take contemporaneous notes of the meeting.

Finally, employers need to remember that the waiver requirements are even more stringent as to the release of federal age discrimination (ADEA) claims (for workers aged 40 and over), which requires that the following criteria be met for a knowing and voluntary waiver of ADEA claims, in the context of individual terminations: (a) the waiver is part of an agreement between the individual and the employer that is written in a manner calculated to be understood by such individual, or by the average individual eligible to participate; (b) the waiver specifically refers to the ADEA; (c) the individual does not waive rights or claims that may arise after the date the waiver is executed; (d) the individual waives rights or claims only in exchange for consideration in addition to anything of value to which the individual already is entitled; (e) the individual is advised in writing to consult with an attorney prior to executing the agreement; (f) the individual is given a period of at least 21 days within which to consider the agreement; and (g) the agreement provides that for a period of at least 7 days following the execution of such agreement, the individual may revoke the agreement, and the agreement shall not become effective or enforceable until the revocation period has expired.

For more information regarding this Alert, please contact Ian W. Siminoff at 973.994.7507 or [email protected] , or any member of the Labor & Employment Department.