How Severance Agreements Benefit Employers in Response to Employee Claims

Severance agreements and releases outlining the terms of separation, including financial compensation, benefits continuation, and other provisions, have utility for both employers and employees when ending an employment relationship. For employers, it is crucial to understand how a signed release can impact potential employee claims brought after termination of employment. In this blog post, we will examine the implications of (i) the general rule that releases cannot prohibit employees from pursing administrative remedies and (ii) a couple notable cases, Santana v. Stuart A. Miller, 314 So.3d 346 (Fla. 3d DCA 2020) and Frattallone v. Black Diamond Coating, Inc., No. 8:14–cv–2818–T–33TBM, 2015 WL 476193 (M.D. Fla. Feb. 5, 2015), which evaluate an employer’s ability to enforce a release against an employee to prevail in a lawsuit. In sum, employers will better understand the utility of severance agreements and where they have an impact on an employer’s potential liability after reading this blog post.

As a baseline rule, an employee cannot release his or her right to pursue administrative remedies.

In a pre-complaint severance agreement, employees cannot waive their right to file a whistleblower complaint with a regulatory agency. For instance, in the case of Khandelwal v. Southern California Edison (ARB Case No. 97-050, 1998 WL 168938, ARB March 31, 1998), the Administrative Review Board for the United States Department of Labor explained an employee’s ability to blow the whistle on potential wrongdoing under the Energy Reorganization Act while potentially forfeiting the opportunity to seek monetary compensation, notwithstanding the presence of an executed severance agreement purportedly prohibiting the employee from engaging in such conduct.

As another example, a severance agreement cannot lawfully prohibit an employee from filing an Equal Employment Opportunity Commission (EEOC) charge. As outlined by the Equal Employment Opportunity Commission’s guidelines on manager responsibilities regarding waivers of discrimination complaints in small businesses (source: https://www.eeoc.gov/employers/small-business/manager-responsibilities-waivers-discrimination-complaints), employees have the right to file charges with the EEOC if they believe they have experienced workplace discrimination or harassment notwithstanding the presence of an executed severance agreement purportedly release claims related to such conduct. Any provision in a severance agreement that attempts to waive or prevent an employee from filing an EEOC charge would be considered unenforceable.

However, it is essential to distinguish that a lawful release in a severance agreement may jave a different impact on an employees lawsuit, even though it cannot prohibit them from filing a complaint to initiate an investigation into unlawful practices with a governmental agency.

Santana v. Stuart A. Miller: Releases can resolve a lawsuit in an employer’s favor, even though it cannot stop a claim from being made.

A severance agreement can have a different impact in a lawsuit than in response to the filing of a regulatory charge, as demonstrated in the Santana case. In Santana, plaintiff alleged discriminatory and hostile work environment claims against her former employer, defendant. The Third District Court of Appeal of Florida affirmed the lower court’s decision entering summary judgment in defendant’s favor, ruling that Santana was bound by a general release she had signed during her termination meeting with her former employer.

The release Santana signed was explicit and covered all claims and demands related to her employment up to the date of its execution. The court emphasized that the language used in the release was clear and unambiguous, adhering to well-settled principles of contract law. Additionally, the court rejected Santana’s arguments against summary judgment, stating that she was provided with ample time to review the release, and her acceptance of the termination compensation check without returning it precluded her from challenging the release.

Frattallone v. Black Diamond Coating, Inc.: Releases may not be beneficial in all circumstances.

However, in contrast to the outcome from Santana, Frattallone rejected defendant’s reliance on plaintiff’s execution of a severance agreement. In Frattallone, plaintiff filed a complaint alleging retaliation under the Fair Labor Standards Act (FLSA) after her termination. Defendant filed a motion for judgment on the pleadings, relying on its affirmative defense that a release agreement signed by Frattallone barred her from bringing any claims, including those related to FLSA, discrimination, harassment, and retaliation.

Given the procedural posture of the case, the court was unable to make rulings based on defendant’s motion for judgment on the pleadings. But, the court did state, in dicta, that even if it could consider defendant’s motion on the merits, judgment (or specifically summary judgment given the procedural posture) would not be appropriate. Firstly, the court pointed out that FLSA retaliation claims cannot be privately settled without proper supervision or approval, which the unsupervised settlement did not meet. Secondly, the court questioned whether the unlawful release of Frattallone’s FLSA overtime claim could be severed from the remainder of the release to afford defendant partial judgment in its favor. However, since the release appeared to focus on wage payment disputes and the consideration amount suggested back wages, the court deemed that the defendants had not proven, as a matter of law, that the release was enforceable to bar Frattallone’s retaliation claim.

The takeaway of Frattallone is that, even though releases may be beneficial in some contexts, federal law may nevertheless override their enforceability to the detriment of the defendant-employer in other contexts.

Conclusion

While severance agreements may restrict an employee from pursuing certain claims through lawsuits, they cannot prevent an employee from contacting the regulatory agencies to investigate allegedly unlawful practices. This ensures that whistleblower and anti-discrimination laws remain intact and that employees have a pathway to address certain types of behavior which society has an interest in addressing—regardless of an individual employee’s release of such claims at law.

The two notable cases, Santana and Frattallone, shed light on the enforceability of releases in the context of lawsuits. Santana demonstrated the utility of well-drafted releases, as the employer resolved a lawsuit in its favor by relying on a comprehensive and clear release that the employee had signed during termination. On the other hand, Frattallone highlighted that releases may not always be enforceable, particularly when they conflict with federal laws like the Fair Labor Standards Act (FLSA).

In sum, while severance agreements and releases can provide valuable protection for employers, employers should understand that severance agreements cannot always act as an “automatic win” against any dispute involving a former employee. To be successful, severance agreements must be carefully crafted and deployed at the proper stage of a dispute to ensure they align with applicable laws and regulations.