South Carolina Lawyer
SC Lawyer, November 2010, #1.
Traps for the Unwary in Employment Releases and Waivers
South Carolina LawyerNovember 2010Traps for the Unwary in Employment Releases and WaiversBy Peter B. MurphyEmployment relationships begin with high hopes and often with little thought that the end of that relationship, while potentially in the distant future, is inevitable. Sometimes that ending is less than amicable, or at a minimum, presents the employer with problems to be resolved.
Employers may offer a release of all claims and liability as part of a severance package for departing employees. The decision to do so is an important question for an employer. Even whether the employer does not perceive any weakness in its position vis-a-vis the employee, the mere offer of a release may be perceived as an admission of weakness. Employers should never agree to a mutual release with a wrongdoing, such as an alleged sexual harasser, as the employer's mutual release of claims against the employee may frustrate the employer's insurance carrier's subrogation rights and result in a denial of coverage.
In the absence of a severance agreement and waiver, employers sometimes become involved in litigation with former employees. Employers often resolve employment-related litigation through settlement agreements containing waivers and releases.
In either case, the preparation of an enforceable settlement or severance agreement is an occasion for thoughtful, careful drafting and frequent legal research. Various federal and South Carolina statutes have modified the common law freedom to contract, making agreements unenforceable that would otherwise be enforceable. Simply put, in employment termination agreements, the careless employer may not receive the benefit of its bargain.
South Carolina contract law
Under South Carolina law, and in the Fourth Circuit, common law principles of contract law form the baseline for determining the enforceability of any employment severance or settlement agreement. Sadighi v. Daghighfekr, 66 F. Supp. 2d 752 (D.S.C. 1999). Employees may only waive retrospective, and not prospective, claims. A valid agreement must contain an offer (the terms), acceptance (the employee's consent, usually in the form of a signature) and valid consideration (usually in the form of money, salary and benefit continuation, or other tangible benefits to the employee). Id. (citing Roberts v. Gaskins, 327 S.C. 478, 486 S.E.2d 771 (S.C. Ct. App. 1997)). Agreements which include arbitration provisions for challenges to the agreement must comply with the South Carolina Uniform Arbitration Act, S.C. Code Ann. §§ 15-48-10 et seq., by containing a notice that the agreement is subject to arbitration typed in underlined capital letters, or rubber-stamped, on the first page of the agreement.
South Carolina courts will not declare an entire agreement unenforceable simply because some provisions within it are not enforceable. However, the severability of invalid provisions "is a matter of intent." Scruggs v. Quality Elec. Services, Inc., 282 S.C. 542, 320 S.E.2d 49 (Ct. App. 1984). Therefore, severability clauses should always be included in severance or settlement agreements, making clear the parties' intent that, should any provisions be deemed unenforceable, they must be severed.
Oftentimes employers also seek to restrict an employee's ability to compete by incorporating non-compete, non-solicitation and confidential information provisions into the agreement. If restrictive covenants are included in an agreement, as with any restrictive covenant, they should...