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Termination: How to Achieve a Valid Release

Recently, the New Jersey Appellate Division reversed a trial court decision which had dismissed plaintiff’s claims under the New Jersey Law Against Discrimination (“LAD”) because plaintiff had signed a release of all claims.  The appellate court determined that the release was not “knowing and voluntary.”  The decision is a primer for employers who want to obtain a valid and enforceable release from employees who are terminated.

Carey v. NMC Global Corp., (App.Div. 2013), involved a high school graduate who had worked in various jobs in the petroleum industry for 15 years, prior to his employment by defendant as a dispatcher.  Carey took a six week unpaid disability leave after he contracted pneumonia.  Upon Carey’s return to his job, NMC’s vice president informed him that NMC had replaced him while he was on disability and he was fired.  He presented Carey with a release agreement and told him that if he signed it he would receive two weeks additional pay.  If he did not sign it, he would receive no additional pay, but in either case, his employment was terminated.

Carey claimed that he was only given five minutes to sign the agreement, which he did not read entirely but did recognize as a legal document.  He did not ask about its terms or attempt to negotiate them.   He claimed that the vice president glared at him throughout the meeting.  He did not consult with an attorney, and was not advised to do so before signing the agreement.  The agreement contained a waiver and release of all claims, including claims under the LAD, and an acknowledgment in bold face type that Carey “acknowledges and warrants that he is signing this agreement of his own free-will, knowingly and voluntarily, and that he has not been coerced or threatened in any manner” and that he “agrees that he fully understands it to be a final and binding separation and release agreement.”  Carey attempted to rescind the agreement four days after signing it, after he had consulted an attorney, but the employer deposited the severance payment in his account, which Carey later returned.

The appellate court looked to the totality of the circumstances and concluded that the release was invalid, applying the following factors:

  1. plaintiff’s education and business experience
  2. the amount of time plaintiff had to consider the agreement
  3. the role of plaintiff in deciding its terms
  4. the clarity of the agreement
  5. whether plaintiff had an attorney or had consulted an attorney
  6. whether the consideration was more than that to which plaintiff was entitled.
  7. whether defendant encouraged or discouraged plaintiff to consult an attorney
  8. whether plaintiff had a fair opportunity to seek counsel.

Factors that weighed most heavily against the employer were its failure to advise Carey to consult an attorney and to provide him an opportunity to do so.  The court noted that the employer bore the onus to encourage the employee to do so.  The court also was troubled by Carey’s claims that he had a limited amount of time to consider the agreement and felt pressured because he was being glared at, and the take it or leave it manner in which it was presented.  Even though the agreement listed the statutes and types of claims he was waiving, the court also stated there was an issue of fact as to whether Carey was aware of the rights he was waiving.

Lessons to be learned:

The Carey decision demonstrates that the circumstances under which a release agreement is presented to an employee can be even more important than the language of the agreement itself.  Employers who want a valid and enforceable agreement that will stand up to court scrutiny should do the following when terminating an employee:

  • Provide the employee with an adequate period of time to review and consider the agreement before signing.  (Carey suggested at least a week.)  Do not allow the employee to sign it at the termination meeting.
  • Advise the employee to consult counsel and provide an adequate opportunity to do so.  Repeat this advice and opportunity in the written agreement.
  • Encourage the employee to ask questions regarding the agreement, and direct the employee to contact a human resources representative.
  • Ensure that the agreement is drafted in clear and simple terms that are understandable and easily read, regardless of the employee’s education and work experience.
  • Have two persons conduct the termination meeting and avoid any language, conduct, or gestures that could be perceived as threatening.
  • Ensure that the agreement is supported by adequate consideration.  In exchange for the release, the employee should be offered more than those benefits to which the employee is already entitled.