Are Your Employee Agreements Fair?

I have had numerous conversations with clients who wish to place certain, potentially, “unfair” language in the contracts they draft for employees. Each time I let them know that we can place any type of language in a contract but just because it is there, and the employee signs off on it, does not mean the terms are fair and defensible in a court of law or are in compliance with federal regulatory agencies such as the EEOC and SEC.

An August 18, 2016 “Employment Alert” article written by: Rachel B. Cowen, Ross D. Eberly and Deborah R. Meshulam warns businesses that they could be under federal scrutiny and be levied substantial fines, if their employee agreements are found to be unfair (Click here to read the full article).

The article places companies on alert that the SEC and EEOC have levied fines against companies who overreach “in agreements with employees or ex-employees” by including unfair clauses in employee agreements such as: prohibition clauses against an employee’s ability to recover; prohibiting employees from making disparaging statements about the company; non-disclosure clauses etc.

To help companies avoid penalties for placing unfair clauses in employee contracts the authors recommend companies revisit their employee agreements in order to “subtract, streamline and specify,” which I highly recommend to my clients and any business that has employees.

The article sets forth the following 8 Steps for businesses to consider to protect employee related documents from federal scrutiny and challenges:

1. Confidentiality requirements appear in a variety of documents, such as employment contracts, business agreements, separation agreements, litigation-hold notices, witness confidentiality agreements used in investigations, restrictive covenant agreements, non-disparagement provisions, IP assignments and employee handbooks. Review your entire range of documents to delete overreaching and unnecessary language.

2. Consider limiting your request for confidentiality to only those specific categories of information that truly require protection (e.g., the amount of a settlement; attorney client privileged information). Likewise, keep your non-disparagement and cooperation clauses narrowly tailored, and only request these agreements from employees for whom it really matters.

3. Include a simple disclaimer in every agreement requiring some form of confidentiality, cooperation or non-disparagement: e.g., “Nothing in this agreement shall be construed to prohibit you from reporting conduct to, providing truthful information to or participating in any investigation or proceeding conducted by any federal or state government agency or self-regulatory organization.”

4. For privileged investigations, you may still advise a witness that the investigation is subject to an attorney-client privilege, the privilege belongs to the company and, therefore, the witness may not disclose the privileged discussions without the company’s consent. The best option is to do this orally in the normal course of the interview rather than in a separate written agreement. If you do memorialize this discussion in writing, it should clearly frame the confidentiality requirements in terms of privilege, while being careful not to suggest that underlying facts are privileged. It should also include the disclaimer above.

5. Simplify your severance agreements. One of the EEOC’s concerns in these cases has been the length and complexity of the agreement. Put down your James Joyce and channel your Ernest Hemingway. Write in plain English, and cut out all legalese and boilerplate wherever possible.

6. Discard the covenant not to sue. The waiver is a complete defense to a subsequent lawsuit over the released claims. The covenant, at best, provides a vehicle to recover fees from a former employee who sues even after signing. But former employees who’ve executed their severance agreements rarely sue; even more rare are the employers who recover attorneys’ fees from such employees.

7. The EEOC has demonstrated that it will go on the offensive against separation agreements when the waiver of claims is not coupled with a disclaimer that the waiver does not prevent filing charges with the agency. To address the EEOC’s concerns, add a clear disclaimer that certain claims are not being waived.

8. Discard the prohibition on the employee’s ability to recover if the SEC, EEOC or someone else brings suit. The SEC is likely to view such provisions as impeding the individual from communicating directly with SEC staff since the potential of a whistleblower bounty is considered an incentive to reporting. On the EEOC front, once you’re in litigation with the agency or in a class action, you have bigger problems than worrying about one instance of potential double recovery (which is no more or less viable without the agreement).