Delaware Employment Law Blog

What happens when an employee signs an employment contract that he doesn’t understand because it’s written in a language he doesn’t speak? Is he bound to its terms despite the language barrier? This was the issue taken up recently by the Third Circuit Court of Appeals in Morales v. Sun Constructors, Inc. The answer? Absent fraud, an employee is bound by the contract he signs, whether or not he understands the language in which it was written.

In Morales, a Spanish-speaking welder signed an hourly employment agreement when he was hired to work for a company, Sun Constructors. Eight of the thirteen pages of the agreement consisted of an arbitration clause, requiring any dispute to be resolved in arbitration. The problem? The contract was written in English, a language the welder did not understand.

After the welder was terminated for “dumping a bottle of urine from a great height on another contractor’s employees[,]” he sought to sue Sun Constructors for wrongful termination. Sun Constructors moved to stay the proceedings pending arbitration, a strategy that would only work if the arbitration clause contained in the employment agreement was found to be enforceable.

The court held that the arbitration clause was enforceable even though the welder was ignorant of the language in which it was written. It was, after all, the welder’s “obligation to ensure he understood the agreement before signing.” And the welder did not do a good job of fulfilling that obligation because he failed to take advantage of the bilingual person Sun Contractors arranged to have help him fill out his paperwork and he failed to retain his own translator (something he had done in the past). The court reasoned that “[i]t will not do for a man to enter into a contract, and, when called upon to respond to its obligations, to say that he did not read it when he signed it, or did not know what it contained.”

The moral of the Morales case is clear--never, ever, sign a legally binding document that you do not understand. If you are a Spanish-speaking employee, and are interested in translation, or other cultural services, please visit the Hispanic Emphasis Program, which provides local resources and contacts that can provide clarity on workplace issues.

Many employers use severance agreements as a way to protect their business from legal liability arising from terminating employees.  Larger companies sometimes use them in just about every termination, while most smaller companies are more selective--offering severance packages only when there is a particularly volatile situation or where there is already a suspicion that the employee will try to sue.  Here are the Top 5 tips that every employer should know about severance agreements before offering one to a soon-to-be former employee.

Who Should Be Offered a Severance Agreement?

The modern school of thought says that employers should consider offering a severance package to all persons who are laid off during a reduction in force (RIF) and to any employee who, for whatever reason, may be particularly inclined to sue. 

Some employers offer severance agreements to every person they terminate.  This becomes problematic, though, when they find themselves having to offer to pay money to an employee with serious policy infractions.  For example, do you really want to offer severance to an employee who is being terminated because he was found to have harassed several female employees?  Probably not.  And he's probably not likely to sue the company.  But, because they've always given severance, the employer is hesitant not to do the same for this employee. 

Specific Requirements for Employees Over 40 Who Are Offered a Severance Package

The Office of Federal Contract Compliance Programs (OFCCP) regulates a variety of record-keeping and tracking requirements.  For example, OFCCP is charged with enforcement of internet application recordkeeping, affirmative action plans, and compensation-audit plans. 

For severance agreements offered to employees aged 40 and over, the OFCCP imposes certain requirements that require strict compliance.  Specifically, the agreement must provide that the employee has 21 (or 45, in the case of layoffs) days to consider the offer.  Then, even after acceptance, the employee has seven days to revoke their decision. 

Failure to include this very specific language can result not only in the agreement being unenforceable, but also in liability against the employer if the employee files suit on the ground that the agreement is not in compliance with the law.  It can also invoke a visit from the Department of Labor. 

What the Severance Agreement Can and Should Prohibit

A severance agreement should prohibit the employee from filing suit on his or her own behalf against the employer from any and all claims arising from the employment relationship.  It should also prohibit the employee from encouraging or assisting others in filing suit against the company. 

The agreement may not prohibit the employee from filing a Charge of Discrimination with the EEOC or local state agency.  But it can prohibit the employee from collecting any damages if the EEOC pursues a suit on the employee's behalf against the employer. 

There has recently been discussion on whether an employee can waive his or her rights under the FMLA. For a while, there was some indication by the courts that such a waiver would not be enforceable.  Recent guidance indicates the opposite--that FMLA claims indeed can be waived in a severance agreement.

Another area subject to debate is the inclusion of a "no-hire" provision.  Some courts have held that an employer who requires its employee to agree not to reapply for future work with the company is actually engaging in unlawful retaliation.  But, again, some recent court decisions have found that an employer who refuses to rehire a former employee who had been fired previously where the refusal is based on a "no-hire" provision, is not engaging in retaliation. 

What to Do When an Employee Wants to Negotiated a Severance Agreement Offer

The answer to this question is more about instincts than anything else.  Especially where the employer does not offer every terminated employee a severance agreement, it is easier to refuse to negotiate it and extend a "take-it-or-leave-it" type offer.

This is especially true if the employee is going to run up the clock with your lawyer.  Remember to include the costs of negotiation in your settlement offer.  If you are wiling to negotiate for an additional amount, try to quantify that amount in advance and realize that, once your expenses have reached that pre-defined maximum, then you either have to cease negotiations with the former employee or reduce the offer so you break even at the end. 

It is not uncommon for employees to attempt to negotiate.  Often, this is more of a pride issue than anything else.  If you're able to be flexible with any point, it may be enough to satisfy the employee that she walked away with her pride still intact.

Other than more money, consider whether a positive or neutral letter of reference may satisfy the negotiating employee.  Or maybe offer to pay his first 2 months of COBRA payments, especially if this may be an area of concern for the employee because of a special health-care need in his family. 

Use a Lawyer

This point cannot be stressed enough.  I have lots of clients who want to reuse old severance agreements as boilerplate agreements instead of calling me for a new one each time.  Really, this is not a good idea.  I can put together a custom severance agreement that is appropriate for the circumstances specific to the employee in less than a half-hour for regular clients and for businesses I know something about or with which I have worked before. 

This is a small price to pay when compared to the expense of a lawsuit brought by an employee who already received severance payments but who was given a defective severance agreement based on a standard, one-size-fits-all template or form. 

And the same goes for the employee. Don't just "let" them use a lawyer.  Encourage it.  And, to be legally compliant, state as much in big, bold, letters on the agreement itself.  It is in your best interest the employee fully understand what rights they are releasing to prevent buyer's remorse.