When an employee’s term of service is ending, whether voluntarily or involuntarily, many employers offer those employees severance agreements in exchange for some form of compensation. Generally speaking, a severance agreement is a contract between the employer and the departing employee, where the employee receives money for agreeing to waive his or her rights to claims against the employer. This is much like the waiver and release language often included in settlement agreements.
The purpose of severance agreements
Not all severance agreements require release or waiver of claims, but instead are meant to be a financial gift in order to hold the employee over until he or she is able to find a new job. The rationale behind the severance agreement that requires a waiver and release is usually to ensure the relationship is completely and forever severed, with each party moving on with no intention to deal with each other in the future. The most basic purpose, though, is to protect the employer from future lawsuits. However, based on the recent lawsuits filed by the EEOC regarding severance agreements, employers should beware of “overly broad” severance agreements.
The legal dilemma surrounding former Penn State president
Graham Spanier is the former president of Penn State, who was forced to resign back in 2011, following the scandal surrounding football coach Jerry Sandusky. Sandusky was accused of child sexual abuse, and it was alleged that Spanier was “actively involved in a decision not to report Sandusky to police or child welfare authorities.”
When Spanier resigned, he entered into a five-year agreement with the university which required that Spanier be kept on staff as a tenured faculty member at $600,000 a year. The school is now suing Spanier for that money back because, the university argues, the severance agreement was negotiated under false pretenses. Why? Because it is alleged that Spanier was actively withholding information regarding the allegations against Sandusky in 1998 and 2001.
It is not clear whether there was any specific severance language at issue in the Penn State case. If so, it most likely involves a representation that the employee was unaware of any legal violations by any other employees. For example, some severance agreements may contain language similar to this: "Employee represents that he or she is unaware of any violations of any law, statute, ordinance or government regulation by the Employer, its agents, employees, officers or directors." In Spanier’s case, if he is found in violation of this type of language, then the university may be able to force Spanier into repaying all or part of the amount he has already received.
It may be that the university is simply arguing that they were defrauded by Spanier when the severance agreement was reached because, if they had been aware of Spanier’s knowledge of Sandusky’s illegal conduct, they never would have entered into the agreement in the first place.
If you have questions regarding a severance agreement, or if you have any questions regarding your employment rights, please contact Wrady & Michel, LLC, either online or by calling us at (205) 265-1880.