SEVERANCE PAYMENT SLIP AND FALL

BY G. A. FINCH

 

I was fascinated with a 22 December 2016 Crain’s Chicago article “Feud explodes at one of the city’s most connected PR firms” by columnist Greg Hinz.  The story intersected two worlds in which I practice law and work: executive employment and governmental affairs.  Although not personally acquainted with the antagonists, Leslie M. Fox and Guy Chipparoni, from my own circles, I have some familiarity with their respective body of work and reputations.

Let’s set the stage. In September, 2014, Greg Hinz pens a short Crain’s piece , writing “Two of the more colorful figures in Chicago’s world of media and politics are getting hitched – professionally, that is…. Neither Mr. Chipparoni nor Ms. Fox is a shrinking-violet type.  But both are capable of doing first class work.  We’ll see how they do together.” The hint of skepticism of Mr. Hinz was prescient.Boxing_gloves

Fox had helped organize and raise funds for Chicago’s hosting the 1996 Democratic National Convention and 1994 World Cup Games (the latter event yours truly had a bit part at the creation).  Chipparoni had been a flack for Illinois Governor Jim Edgar and founded his own successful public relations firm, Res Publica Group, of which he later asked Fox to become a part.

In December 2016, Fox filed a law suit against Chipparoni personally and his firm alleging that Chipparoni breached an employment agreement by not providing her severance benefits after she invoked a “Good Reason” termination provision  “because during her employment there was a consistent, persistent and continuous diminution of Fox’s contractual duties, responsibilities, powers and authorities which … were to be those customarily associated with the position of Executive Vice-President.”Bossth

Two of the most serious allegations were A) that Chipparoni diminished her ability to prevent Chipparoni from appropriating opportunities and assets belonging to the firm and B) that Chipparoni treated the firm as his alter ego and did not maintain the firm as a separate legal entity.  These allegations lay the foundation for a claim of personal liability of Chipparoni. Ouch!

Fox also has a more common variety breach of employment contract allegation that Chipparoni disparaged her to others.  We do not know from the complaint what alleged disparaging remarks were made.  We can assume that Chipparoni will file an answer to Fox’s complaint denying making disparaging statements or otherwise breaching the contract and file affirmative defenses to her claims.

In my executive employment blog, I have written that employers usually underestimate the destructive power that an angry, committed terminated employee can have on the morale, reputation, and resources of their organizations.  What many employers fail to understand in their not being reasonable in their severance offer is that the terminated, aggrieved employee may present a sympathetic image to a judge or arbitrator or the court of public opinion.  Moreover, the peeved employee may dig up bones of alleged legal and regulatory liability of which the organization’s higher ups may not even be aware.   The organization may have unintentionally birthed a whistle-blower.   A boss may have not ever thought of liability for the firm, let alone, his own personal liability

An employer’s having and abiding by a non-disparagement employment contract provision should be basic practice.  From the employer side, the employer does not want a disgruntled former executive trashing the company thereby diminishing the brand, reputation, and good will of the company.  The executive certainly does not want the executive’s ability to work effectively at the executive’s job to be made more difficult or to find new employment to be precluded by negative comments being made about the executive during the executive’s employment or after the executive’s employment.  In the Res Publica case, Chipparoni’s alleged disparaging comments has produced a claim of breach of contract.  A further take away for employers is that an employer must not say or write anything that injures the reputation of the executive that could form the elements of a defamation claim.

As I have blogged previously, severance payments are pragmatic.  Employers ought to consider providing for severance payment and a neutral letter-of-reference in separation agreements where there is no employee misconduct. These provisions often generate goodwill from a departing employee, thereby reducing lawsuits, and the provisions can be used to bind an employee to confidentiality, non-disparagement, and non-compete obligations as well as release most claims against the employer.  Severance payments demonstrate humaneness and compassion on the part of the employer.

courthouse

Employment lawsuits are expensive and generate bad public relations for a company. As long as the severance compensation is not excessive, it really is a no-brainer in terms of a cost-benefit trade-off for an employer.

Fox wisely obtained an attorney to review and negotiate her employment contract that sets the terms of her separation from Res Publica.  Among other things, it enables her to fire her employer when good reason is shown, namely, the diminishment of her executive responsibilities and receive a severance payment; it provides for non-disparagement of her to protect her reputation; and it sets out clearly the basis of her compensation. It remains to be seen whether she can prove her breach of contract claim, but protracted litigation creates bad optics for Res Publica and Mr. Chipparoni even if they prevail in the lawsuit.  After all, public relations and governmental relations are about achieving positive outcomes or damage control.  Neither positive outcome nor damage control has occurred here.  In my law practice I have seen that this kind of dispute probably will settle  sooner rather than later.

 

Copyright © 2017 by G. A. Finch, All rights reserved.

 

COVENANT NOT TO SUE

BY G. A. FINCH

“A covenant not to sue” as the term suggests is a legal promise not to file a lawsuit.  It is usually a companion provision to releases and waivers in a release agreement. Releases and waivers are de rigueur in employment separation/severance agreements.  Lawyers drafting separation/severance agreements favor including a covenant not sue because it can be raised as an affirmative defense in litigation if the party giving the covenant not to sue then decides subsequently to file a lawsuit.

courthouse clipart

As the employer’s attorney is the person that usually does the initial draft of a separation agreement, the covenant not to sue is a provision  that an employee reflexively gives to an employer without much thought and not vice versa.  When I represent the employee, I negotiate for the covenant not to sue be mutual, i.e., what is good for the goose is good for the gander.

canadan goose clipart

If the employer requires peace of mind that the separation agreement will prevent future controversies, so should the employee have the same.

In a separation/severance agreement, a covenant not to sue is subject to certain limitations and exceptions concerning 1) an employee’s ability to file administrative charges with the Equal Opportunity Commission and corresponding state or local agency, 2) an employee’s ability to file a lawsuit to challenge whether the employee signed the agreement knowingly and voluntarily for purposes of the Age Discrimination in Employment Act, 3) an employee’s ability to being a witness in a class action suit against the employer,  or 4)  an employee’s ability  to waive a right which waiver is prohibited by law.

 

Final points:  Although releases and covenants to not sue are usually set out together in a separation/ release agreement, there is a subtle difference between them.  A release gives up or relinquishes a right to enforce a right or a claim that could have been enforced while a covenant not to sue is an agreement not to assert a right to bring a cause of action in court.   Put another way, a release extinguishes a right and a covenant not to sue does not allow a right to proceed to litigation.  A permanent or perpetual covenant not to sue, as opposed to a set time limit not to sue, has the same effect as a release or discharge.

This may be too much information for the typical executive to know or care about.  The important thing to remember is to make reciprocal both releases and covenants not to sue.

I WROTE IT SO WHY CAN’T I USE IT?

BY G. A. FINCH

You are leaving your job or you have already left. After you leave, you want to use all of your power point presentations, white papers, newsletter articles, and blog posts that you did for your employer. Not so fast. Are you allowed to do that? Who owns the written work that you produced? Increasingly I am called to advise incoming or departing executives and professionals on how to preserve and protect their intellectual property rights or understand how to avoid violating the intellectual property rights of their former employers. This post focuses on copyrights, not trademarks or patents or trade secrets.

quill_writingYou need to know the copyright laws. You also need to know what confidentiality/intellectual property agreements you may have signed either in an employment agreement or in a separation/severance agreement or both.

The basics for a copyright are:

  • A work must be original
  • A work must be completed and in tangible form like a written article
  • A copyright holder has the right to reproduce, to distribute, to modify the work, and to perform or display it
  • A copyright holder does not have to register his\her\its work to gain copyright protection and does not have to display the copyright symbol

An employee should note well that ordinarily the employee’s work authored within the defined scope of employee’s employment constitutes a work made for hire. Although the employee physically created the work, the employee may not own it, rather the employer does. Most savvy employers will eliminate any legal ambiguity of copyright ownership by having the employee sign intellectual property and invention assignment agreements.

Although they can vary in length from three sentences to two pages, an assignment of intellectual property provision typically looks like the following:

“ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full written          disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks or trade secrets, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the employ of the Company ….”

no_copyrightPrior to commencing employment, an employee would do well to carve out in a written agreement any invention, original works of authorship, etc. to ensure such work product or invention is not assigned or deemed owned by employee’s new employer. Also prior to any departure, the employee should set out in an agreement what works employee created that were not created on the job or are not assigned to the company.

When the employee does not own the written work employee created, the most obvious and practical thing to do is simply ask permission from the previous employer.

Lastly, there is a limited way to use copyrighted material without permission and not infringe. This way is called “fair use.” For example, if you fairly and reasonably use a short quote and credit it for commentary and criticism, news reporting, teaching, research or parody, you are probably okay. The evaluation includes whether your use adversely affects the market for or value of the work. When in doubt, consult an attorney.

PREVAILING PARTY’S LITIGATION EXPENSES

A not uncommon provision in employment agreements, separation agreements, or stand alone agreements containing restrictive covenants (e.g. non-competition and non-solicitation) is a “prevailing party” provision.  This kind of provision grants the prevailing party in any litigation over an agreement the right to be reimbursed its, his or her legal fees and costs.

A typical prevailing-party provision will read like the following: “If litigation arises under this Agreement between the Company and the Executive, the prevailing party in such litigation shall be entitled to recover its or his reasonable attorneys’ fees, court costs and out-of-pocket litigation expenses from the non-prevailing party.”

The prevailing-party provision serves as a disincentive for an individual employee to assert his legal rights or to take a risk of violating an agreement.  From the outset, the employer ordinarily would have more financial resources to litigate, and this added provision of saddling the non-prevailing party with all the litigation costs has a chilling effect on the employee’s seeking vindication of his rights.  From the employer’s standpoint, this is precisely the sobering reminder that an employer wants to send to its ex-employees who may choose to test the validity of the employer’s restrictive covenants, especially non-compete clauses.

In any event, the prevailing-party provision is one that must not be overlooked by either the employee or the employer.

SEPARATION AGREEMENTS: OBSERVATIONS FROM THE TRENCHES

BY G. A. FINCH

Unfortunately, in 2011, I have been doing more executive and professional separation/severance/release agreements than executive employment contracts – a sign of the times.  We have had an economic recovery that has not yet favorably affected job retention and growth.

People who have never been terminated either by being laid off or by being fired have no idea the shock, pain, embarrassment and humiliation that a terminated executive or professional undergoes.  I represent as many terminating employers as much as I represent terminated executives, so I have a perspective on the process, the issues, conditions, mechanics, and yes: the drama of it all.

I observe and note the following few points:

Reasonable Severance Packages Make Good Business Sense

Employers usually underestimate the destructive power that an angry, committed terminated employee can have on the morale, reputation, and resources of the organization.

What many employers fail to understand in not being reasonable in their severance offer is that the terminated, complaining employee may present a sympathetic image to a third-party fact finder in terms of discrimination charges concerning age, gender, religion, race, disability, etc.  Inchoate (and sometimes manufactured) discrimination  charges may rise to the surface for the first time when an employee feels she or he is not receiving a fair severance package.

The peeved employee may dig up bones of legal and regulatory liability of which the organization’s higher ups may not be aware.  The organization may have unintentionally spawned a whistle-blower.

Sense of Entitlement

Terminated employees usually overestimate what they are “entitled to” and what the company would be willing to pay in severance payments and benefits.  Unrealistic expectations lead to disappointment and deadlocked negotiations.

A company will have a severance payment number it deems economical or sometimes  a rigid severance calculation policy.  An employee must understand that, without an employment contract severance provision, the company, rightly or wrongly, believes that it is doing the employee “a favor” by voluntarily giving the employee severance when the employee is legally entitled to nothing. 

Advice of Counsel

Although separation agreements ordinarily admonish the employee to obtain legal counsel to review the separation agreement, too many employees drop the ball.  The employee may fail to obtain legal counsel.  The employee might tender the agreement to his attorney a couple of days before the drop-dead date for signature, leaving little time for a comprehensive legal review of the agreement and the employee’s legal situation, and insufficient time to negotiate with the
employer.

For some employees, the failure to obtain legal counsel is a cost-saving measure, which is being penny wise and pound foolish. For other employees, it is due to a lack of sophistication.  For still others, it is because of their utter demoralization resulting in passivity. Those employees represented by counsel more often negotiate better agreements than those who do not.

Non-solicitation Covenant Versus  Non-Compete Covenant

In terms of restrictive covenants, I believe the real meat and potatoes lie in the covenant not to solicit customers.  In my view, the non-solicitation covenant has more impact than a non-compete covenant.  This is so because 1) the non-compete covenant is more vulnerable to legal attack and 2) the non-solicitation covenant can be more specifically tailored to protecting the legitimate business interests of the company by identifying the company’s true existing customers with whom the departing employee would not have developed a relationship but for his employment with his company.

A well drafted non-solicitation covenant can make a non-compete covenant superfluous.

A judge who has problems with an unreasonable non-compete provision may carryover her skepticism and displeasure to other legitimate, reasonable restrictive covenants like non-solicitation.

No Pity Parties

Terminated executives ought to let themselves go through the grieving process for no Race To Your Next Opportunitymore than four or five days, and then get over it. People get terminated all the time and the executive is not special for having been terminated. If you read the financial press, the shelf life of C-suite executives is getting shorter and shorter. Of course, losing one’s job is a very unpleasant feeling to say the least, but no one has a monopoly on adversity.

The sooner the executive begins working on his next great opportunity and not fixating on “what happened to me and why me,” the better.  At the risk of my using clichés, an executive’s determination to have a positive attitude in his job quest does make a huge difference in reaching a successful outcome.  One should burn no bridges with one’s old employer and get busy as a beaver building new bridges to a new employer.  An executive must race on to his next opportunity.

WAIVERS AND RELEASES IN SEPARATION/SEVERANCE AGREEMENTS

 

When an executive leaves his company because he resigns, he is fired, or he is downsized, the executive may get a separation agreement that includes severance payments, restrictive covenants and many other provisions.  The separation agreement may be also called a settlement agreement, a release agreement or a severance agreement.   One provision that is usually in separation agreements is a waiver and release provision that requires one or both parties to agree not to bring claims or law suits against the other. 

Waiver and Release Are Pretty Standard

Employers almost always have a waiver and release provision running in their favor in separation agreements.  The employer’s obtaining a waiver and release from the departing employee is usually the major incentive for the employer to agree to give the employee a severance payment.

Reciprocity

The departing executive should also insist upon having a provision that waives and releases the employer’s claims and causes of actions against the executive.  The waiver and release provisions should be reciprocal and the waiver and release should cover any existing or potential and known and unknown claims or causes of action.

Kinds of Claims Covered

The release provision in favor of the employer is ordinarily quite lengthy and includes every possible claim or cause of action that the employee could bring or initiate against the employer.    The employer’s  waiver and release provision covers violations concerning employment contracts, employee handbooks, Fair Labor Standards Act, the Americans with Disabilities Act, the Employee Retirement Income Security Act,  the  Family Medical Leave Act, Age Discrimination in Employment Act, state minimum wage acts, state wage payment and  collection acts,  and so forth.

Kinds of Persons & Entities Covered

The release of the employer will also specifically discharge every entity and everybody associated with employer such as its subsidiaries, affiliates, directors, officers, administrators, employees, agents, attorneys, successors, assigns and each person acting in the name of or on behalf of employer.

Global Application

The waiver and release provision can be made absolute and comprehensive as to private party causes of action, as opposed to any government initiated actions.  Typical language used to ensure comprehensive application of the  release can be something like the following: “It is the intention of the parties not to limit this release to claims arising out of or in the scope of Employee’s employment by Employer and to make this release as broad and as general as the law permits.” 

Non-Waivable Claims and Carve Outs

Each party should have a clear understanding of any limitations of, or carve outs in, the waiver and release.  If there are any limitations or carve outs, they should not be so vague and subjective  that the complaining party can arbitrarily and capriciously file a claim or law suit, thus defeating the purpose of the waiver and release.   There is something to be said for achieving finality of non-liability for the parties so that each of them can move on.  However if one party, for example the employer, feels strongly that certain possible claims cannot be waived because of unanticipated bad publicity or regulatory scrutiny or strong moral imperatives, then  that party should carve out the egregious claims,  like malfeasance.  Some claims cannot be legally be waived.

Typical language excluding non-waivable claims would be something like this: “Excluded from this waiver and release is any claim or right which cannot be waived by law, including all claims arising after the date of this Agreement and Employee’s worker’s compensation claim, the right to file a charge with or participate in an investigation conducted by an administrative agency, and the right to enforce this Agreement.”

So many waiver and release provisions have become boilerplate that many attorneys and clients do not scrutinize them as hard as they should.  Each separation agreement may have different circumstances and its waiver and release language must be viewed anew and crafted to meet the exigencies of the parties’ employment relationship.

NON-DISPARAGEMENT PROVISION IN SEPARATION/SEVERANCE AGREEMENT

BY G. A. FINCH

Many executives and professionals will face termination of employment in their careers.  Termination may result from a firing or lay off or voluntary resignation.  Frequently, a separation agreement with severance provisions will be part of the termination.  Whatever the reason for termination, one often overlooked provision in the separation/severance documents is a non-disparagement provision.  Both executive and employer may inadvertently omit this critical provision. 

From the employer side, the employer does not want a disgruntled former executive trashing the company thereby diminishing the brand, reputation, and goodwill of the company.  The executive certainly does not want her ability to find new employment to be precluded by negative comments being made about her by personnel at her old employer.

In agreeing to a non-disparagement provision, the employer has to be careful in limiting the number of persons who would fall under the application of the non-disparagement provision.  Obvious persons such as the C-suite executives and the board of directors and the HR Director could be controlled.  The provision obviously should not apply to everyone in a company comprising 10,000 employees.

The scope of the application to the employee is much easier as the employee should be able to control himself and his spouse.

Many times the non-disparagement provision is missing from the separation agreement and, if there is one, it usually is one-sided in favor of the employer.

When I recommend a non-disparagement provision to a client, whether an employer or an employee, I invariably get a why-didn’t-I-think-of-that response.

From a risk management perspective, it is a way of reducing defamation and libel lawsuits.

In most cases, a non-disparagement provision is a win-win in an executive termination.