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Severance Agreements Signed Under Duress

On Behalf of | Oct 24, 2013 | Employment Law

When an employee is told she is going to lose her job and given an option of a severance agreement, while she may feel pressured to take this severance deal, she should understand that it is likely that she would not only receive the benefits, but the obligations of that deal. Such was the situation of Terry Bryant, who after being told by her employer, Liberty Mutual, that her work was unsatisfactory, agreed to a severance agreement wherein she received severance payment in exchange for her release of claims against Liberty Mutual.
On May 31, 2013, a New Hampshire federal trial court judge ruled that Bryant was not going to be allowed to go to trial with her employment claims against Liberty Mutual because of a valid severance agreement she signed. The facts were that in September 2005, Bryant began working for Liberty Mutual as a supervisor overseeing the work of four other employees. In the winter of 2010, Liberty Mutual became concerned about a substantial backlog of work in Bryant’s department. Bryant met with the Human Resource Department and was informed that she had the option of allowing the disciplinary process to proceed and await its outcome, voluntarily quitting, or agreeing to a mutual separation with a severance agreement. Bryant claimed she felt pressured because if she quit or was fired for cause she might not be able to get unemployment benefits nor receive the severance benefits offered by Liberty Mutual in exchange for a release of claims. She claimed, among other things, that she was subjected to duress and coercion in signing the Agreement and therefore should be allowed to sue Liberty Mutual, notwithstanding the release of claims in the severance agreement.

The Court noted that under New Hampshire law a claim of undue duress would essentially claim that the agreement was not signed voluntarily and that Bryant would have to show that she involuntarily accepted Liberty Mutual’s contractual terms and that the coercive circumstances were a result of Liberty Mutual’s acts, that Liberty Mutual wrongfully exerted pressure, and that under the circumstances Bryant had no alternative but to accept the terms set out by Liberty Mutual. The Court noted that Bryant faced difficult choices of: accepting the severance and releasing her right to bring legal actions against Liberty Mutual; quitting; or perhaps being dismissed for cause. However, those difficult financial and personal choices do not equate to coercion in the legal sense, nor does it mean that Bryant executed the severance agreement under duress. On July 29, 2013, another New Hampshire federal trial court judge in the case of Isabel Stevens v. Liberty Mutual used a similar analysis as in the Bryant case, likewise, determining that Liberty Mutual did not exercise duress to force Stevens to sign the severance agreement. Simply put, the fact that an employer may have leverage over the employee in signing a severance agreement does not result in duress so as to void the agreement that the employee signs.

The severance agreement was written in plain, easily-understood language stating that Bryant was releasing her claims against Liberty Mutual. The Court noted that Bryant was afforded and actually took ample time to review the document and that she discussed it with her husband. The severance agreement also had the requisite language provided for federal age-discrimination claims, which happened to be one of Bryant’s several claims against Liberty Mutual, and provided her 21 days to review the document and suggested that it be reviewed with her own attorney, and she had 7 days to revoke the Agreement after signing it. If the employer presented it to her in same meeting of where she was being fired and told her to sign it then, the Court may have had a more difficult time in dismissing her claims.

Employers should consult with their employment attorney in drafting a severance agreement and in discussing how to present the severance agreement to the employee, like Liberty Mutual obviously did, to ensure that the agreement complies with the law and that the employee is given a proper chance to knowingly and voluntarily waive her legal claims against her employer in exchange for the severance payment received. What employees should take away from this case is that you should not sign a severance agreement that you do not expect to have enforced against you. When in doubt, an employee given a severance agreement to consider should have it reviewed with an employment attorney of her choice to see what restrictions it places on her, not only to make legal claims against her former employer, but also as to the restrictions of future employment options, such as prohibitions against working for a competitor.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].