The Connecticut case Gengaro v. City of New Haven serves as a lesson to all employers who engage in the practice of having employees sign settlement agreements. In that case, an employee sued their employer for undue influence when the employee signed a settlement agreement allegedly under threat that the employee would otherwise lose their job.
An employer may wish to offer an employee the option to resign, because doing so allows the working relationship to end on good terms. In turn, employees are apt to agree to this arrangement because it allows them to tell prospective employers that they resigned rather than were fired from their last job. However, trouble often arises when employers ask resigning employees to sign what is commonly called a settlement agreement—essentially, this is a waiver releasing an employer from all potential claims that an exiting employee may have against it.
However, the Connecticut Appellate Court held that the employer’s actions did not amount to undue influence. Further, the court concluded that settlement agreements are enforceable in court if the terms are unequivocal and authorized by the parties.
The Gengaro case is not binding in Massachusetts, and there appears to be no similar conversation being had here. As a result, employers may want to take notice of the Connecticut decision and cover their bases when drafting employee settlement agreements to avoid having to litigate a case like Gengaro in this state.
How can an employer avoid the pitfall of an undue influence claim based on a separation agreement? Several rules of thumb include: drafting the agreement with help from legal counsel and using clear, plain language; allowing the employee time to look it over and present it to their attorney prior to signing; and adding a clause stating that the employee understands the terms and has not been unduly influenced to sign the document.