Maine Bar Journal
Winter 2005 #5.
When your client faces firing: Analyzing, negotiating, and drafting severance agreements
Maine Bar JournalWinter 2005WHEN YOUR CLIENT FACES FIRING: ANALYZING, NEGOTIATING, AND DRAFTING SEVERANCE AGREEMENTSby Howard Reben and Adrienne HansenEllie Elderberry is a senior editor at Teen Scene Magazine. Ellie started with the publication thirty-five years ago, back when it was known as Etiquette Magazine, and she has built her career in the magazine industry. On Ellie's sixtieth birthday, her boss, Yolanda Young, summoned Ellie to her office.
Yolanda made a joke about Ellie being "the grandmother of the teen magazine industry" and asked her how much longer she planned to stay before she retired to that "gorgeous beach house in Florida." Surprised by her boss's remark, Ellie mumbled something about feeling like she was twenty-five and excused herself. After a few weeks, Ellie began to notice that her projects were increasingly being given to a newer, younger editor, Tina Trendsetter. When Ellie asked Yolanda about this, she responded, "Let's face it, Tina can relate better to the teen scene. She's more hip."
Ellie is very upset, as she feels that she has always done a good job for the magazine. She loves her work and would have kept at it a few more years, but with all of her projects going to Tina, she fears that she will be demoted - or worse. Ellie's goal is to obtain as good a severance as possible and enjoy her retirement. A brief interview reveals that Ellie earns $125,000 per year. She has no contract. She did sign a covenant not to compete. The covenant prevents her from working for any of Teen Scene's competitors anywhere in the United States for a period of five years. Ellie has a lawyer friend who told her that the covenant is not enforceable, as it was given during her employment and without consideration.
Your inquiry with Teen Scene's attorney reveals that sales were lagging in the past year and it was believed that Ellie was the problem. Ellie is flabbergasted when she hears this. She feels that she has given the best years of her life to the magazine, and in return they have tarnished her professional reputation. Ellie is also bitter about the fact that she broke her ankle a few years ago when she slipped on ice in the entryway of the building and she only received a few weeks' payments and medical reimbursements. Teen Scene is self-insured, so Ellie felt awkward about pursuing a claim. Lastly, Ellie is a diabetic and she wants to know if she can continue on Teen Scene's comprehensive health plan.
Where do you begin providing legal services to accomplish Ellie's goals? This article is intended to help plaintiffs' employment lawyers in analyzing, negotiating and drafting cohesive severance packages for employee clients like Ellie. Effective representation in this area involves careful analysis of all potential claims, because a severance contract is essentially a settlement agreement, involving the waiver of potentially large monetary claims and possible opportunities to secure major monetary and non-monetary benefits for the affected employee. Simply analyzing whether the severance contract meets the legal formalities is insufficient to protect the interests of the employee. The following is a step-by-step outline of the analysis which should be undertaken whenever you are asked to analyze, negotiate, or draft a severance agreement for an employee client.
Confer with your Client to Clarify the Goals of Severance Negotiations Begin by clarifying your client's goals. Remember that your client is a unique individual with distinct priorities and goals. While your top priority may be obtaining the most money for your client, your client's goal may be to facilitate a transition into a new position. It is often possible to devise a creative solution that softens the harsh economic and psychological effects of a termination. In Ellie's case, it may be possible to secure for her a role as consultant, advisor, or even corporate officer in order to facilitate her transition into new employment or retirement while at the same time protecting her dignity.
Evaluate the Appropriateness of Settlement Consider whether your client has a cause of action under federal or state law for discrimination on the basis of a protected trait (age, disability, national origin, race, sex) or has some other potential non-discrimination claim (e.g., breach of contract, failure to pay wages, defamation, fraud, invasion of privacy). In Ellie's case, the comments made by her boss in conjunction with her replacement by a much younger woman may provide a cause of action for age discrimination (or they may be disregarded as mere "stray remarks"). Also consider whether your client is willing and able to endure litigation and whether the employer is willing to settle. Lastly, consider the effects of withdrawing administrative charges that have been filed. The employer's counsel almost certainly will...