Published on August 22nd, 2017 by Alan L. Sklover
“Don’t tell me of deception.
A lie is a lie, whether to the ear or to the eye.”
– Samuel Johnson
ACTUAL CASE HISTORIES: Likely due to recent news about shortages of qualified employees, more and more employers are using retention agreements to retain their employees during periods of insecurity, such as mergers, divestitures of company divisions, periods of lowered revenue as well as in event of rumored layoffs.
In my decades of practice, I have negotiated many retention agreements. The essence of a retention agreement is pretty simple: It is “You stay, they pay.” Or, in more legal-sounding language:
“If (a) you promise to, and do, remain as an employee for a certain, specified period of time, then (b) the employer promises to pay you a certain, specified sum of money.”
Retention agreements do not contain “releases” or “waivers” of claims. There is no reason for them to contain releases or waivers of claims. Releases or waivers of claims have no place in retention agreements. The essential requirements are (i) you agree to stay, and if you do (ii) they pay you a specified sum of money. No releases. No waivers. No reason for them.
In my decades of practice, I have also negotiated many severance agreements. The essence of a severance agreement is also pretty simple: “You release them from claims and lawsuits, and they pay you a certain, specified amount of money and certain benefits.”
In severance agreements, there always needs to be a release or waiver of claims because that is a fundamental part of the severance transaction. You might say that is exactly what the employer is “buying” in the bargain. In more legal-sounding language, this is what a severance agreement says:
“If (a) you promise to, and do, release and waive your claims (and possible lawsuits) against your employer, and perhaps do certain other things, then (b) your employer will pay you a certain sum of money.”
It is here – in severance agreements – where we expect to see releases and waivers of claims because they are part of the very essence of a severance agreement.
Retention agreements and severance agreements are two different agreements, meant to accomplish two different goals, and each (i) rewards, and (ii) obligates employee in two very different ways.
There is no rule or law that says that retention agreements and severance agreements cannot be placed into one single “Retention and Severance Agreement.” I have seen just that, in which the two offers exist in the same document in a way that expresses:
(a) If you stay a certain period of time, we will pay you $25,000 for not leaving (retention); and
(b) If we should lay you off during that period of time, we will pay you a severance of $80,000 for signing a release of claims (severance).
Notice that you should be paid for staying put, and you should get paid additional monies for the release of claims provided. Notice, too, that you should not provide a release of claims for the retention, but for the severance.
I have no problem seeing a combined retention-and-severance agreement. I do have a big problem with a deception that gets the employer the right to lay you off with no payment, other than a payment that you have earned for agreeing to remain in place during insecure times.
In recent times, I have seen employers mix the two (retention and severance) together without telling the employee, and without paying the employee for the release, which is very valuable, and thus taking wrongful advantage of the employee. It’s like getting a release for free, under false pretenses. Lured by the sound of “free money” for the retention, the employees do not even realize they are effectively also signing a severance agreement.
The first time I saw this deceptive variation of a retention agreement, I said to myself, “What is this???” It took me a few minutes to figure out what it was, and what it represented to my client, what it offered my client, and more importantly, what it “took” from my client. Now I am seeing this “deceptive hybrid” retention agreement more and more, and I have come to understand their deceptive danger to employees.
LESSON TO LEARN: There are three important lessons to learn in this circumstance, one quite simple, and one quite sophisticated.
1. First Lesson: “Titles Don’t Count.” Just because a document’s title is “Retention Agreement” does not make it a Retention Agreement, or only a Retention Agreement. What is “inside” the document is what counts. You have to read every word of an agreement before you understand it, and you should never sign an agreement unless you fully understand it. If you don’t understand what it says, and understand what it both “gives” you and “takes from” you, keep your hands and your pen in your pockets.
2. Second Lesson: “True Retention Agreements Do Not Contain Releases.” If you are reviewing a document entitled “Retention Agreement,” and you see in it a release or waiver of claims in it, “beware.” It may not at all be what you expect. While retention agreements are often seen as positive opportunities to make extra money, severance agreements mean something far less positive: you will likely soon to be losing your job, and that is worrisome.
3. Third Lesson: “A Retention Agreement Containing a Release May Be a Disguised Severance Agreement.” The fundamental reason an employer gives money to an employee who is being downsized or laid off is not love, and it is not concern for his/her well being. Rather, it is to “buy” a release or waiver of claims, to reduce the risk of a lawsuit to the employer. Now here is the thing I hope you will remember most: If the employee recently gave to the employer a release or waiver of claims, the employer does not need to give the employee any severance payments or benefits in return for another release: it just got what it needs and wants.
So, if by means of a retention agreement, an employee has unwittingly recently given an employer an release or waiver of claims, that retention agreement may just be a disguised or mislabeled severance agreement, and a layoff – without claims or defenses to it – may be “just around the corner.”
WHAT YOU CAN DO: We recommend consideration of these eight thoughts if you are given a document called a “Retention Agreement” that contains a release of claims or waiver of claims:
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