What Can Employer’s Learn From Conan O’Brien’s Severance Agreement?

It now appears the Conan and NBC saga is coming to the end. It is being reported that Conan will leave NBC with a boat load of cash and will be free to have a new show on another network in the Fall. The specific terms of the deal have not yet been released, but they will definitely be detailed in a contract between Conan and NBC. Such a contract, often called a severance agreement, is used in high risk terminations as a means of avoiding costly and distracting litigation.

The key elements of a severance agreement include:contractguy

  • A provision detailing the nature of the separation. Employees usually want it characterized as a resignation. This allows the employee to search for new work without the stigma of a termination on his or her record. This provision should, of course, describe the last day of work.
  • A discussion of how much money is going to be paid to the employee and how it is going to be paid. This is obviously a key provision for both the employee and employer. While it is unlikely that an employee will be receiving $33 million like Conan, it is likely that some payment will be made. Such a payment may be in a lump sum or paid on some schedule agreed to by the parties.
  • A release of all claims the employees may have against the employer. This release must be broad enough to ensure that the settlement is truly the end of the matter. As a result, it should be drafted in a way that covers all entities and people who may be the target of a lawsuit. It should also cover any particular state or federal statute or claim that can be brought by an employee against a former employer. Special care must be given when drafting a release involving a claim under the Age Discrimination in Employment Act (ADEA). A federal law, the Older Workers Benefits Protection Act (OWBPA), requires that the employee: be provided notice that ADEA claims are being released ; allowed at least 21 days to consider the release; be given 7 days to rescind the release; and be advised that they should consult an attorney.
  • A provision detailing payments for any accrued but unused sick or vacation pay.
  • Provisions detailing the treatment of confidential and proprietary information. It is crucial that the obligations of the employee be spelled in a way that both parties know what is expected of them. For example, it is reported that Conan will be required to leave behind the various characters he and his team developed through their years at NBC. All employees should be required to return any company papers, computers, and the like.
  • Terms describing when and how the departing employee can compete with his old employer. Key employees, like Conan, often have an employment agreement containing a restrictive covenant limiting their ability to work in the future. The scope of such a covenant is often modified during the negotiations involving the employee’s departure. In Conan’s case it appears that he will be able to launch a new show sometime in September. You can bet, however, that there was a lot of discussion over what Conan could do in the interim.
  • A term discussing whether the employer will oppose the employee’s unemployment compensation claim
  • A discussion as to whether the employer will continue the employee’s health care coverage and for how long. Such continuation may be for a number of months or until the employee obtains new coverage from an new employer.
  • A discussion of how the employer will respond to requests for references from potential new employers. Consideration should be given requiring the employee to direct all such inquiries to a specific person who will respond in an agreed upon way.
  • The agreement should require that the terms of the agreement remain confidential or, at a minimum, provide what will be provided to the press or public. Such a provision is especially important in high profile terminations in which each party will need to “save face.”

To catch up on the Conan/NBC saga, see my previous posts, Why NBC Should Have Used Delaware Law In Conan O’Brien’s Employment Contract, and What Can Employers Learn From Conan O’Brien and NBC?


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What Can Employers Learn From Conan O’Brien and NBC?

Just a few days ago, NBC announced that it was moving the Jay Leno Show from its current 10 p.m. starting time to 11:35 p.m. This move was prompted by complaints from NBC affiliate stations that the Show’s poor performance was damaging the ratings of their local news programs and their profits. The move of Leno’s show, however, will require moving the start of the Tonight Show to 12:05 a.m. Yesterday, Conan O’Brien released a statement objecting to the changes and threatened to leave the show. What can employers learn from this high profile, high-stakes predicament?

Conan and Leno are employees of NBC and their rights and obligations are governed by employment agreements. As a result, the options of all three parties will be determined by the terms of these agreements.

Conan’s threat to bolt from NBC is likely based on a basic tenet of contract law: a party to a contract is relieved of the duty to perform (no pun intended) if the other party to the contract materially breached the contract first. While I have not seen the terms of Conan’s agreement with NBC, the final resolution of this highly public squabble may well turn on whether NBC’s actions are in breach of its agreement with Conan.

But how does the Conan-NBC contract apply in the real world? Well, Conan’s agreement with NBC, like many employment agreements, probably contains express restrictions on Conan’s ability to jump to another employer. Indeed, rumors are flying that Fox may be interested in bringing his talents to that network. If Conan can show that NBC actions materially breached his contract, he could be relieved his contractual obligation to provide a show for NBC and any restrictions preventing him from jumping to another network.

As a result, an employer should always make sure that any material changes affecting a key employee are in compliance with the terms of any employment agreement with that employee. If not, a court may refuse to enforce any non-competition provisions contained in the agreement.

AIG – Between Scylla and Charybdis

The current hullabaloo over the AIG bonuses is a good example of the old adage that bad facts make bad law, and is especially puzzling to employment lawyers, who understand that employment agreements are usually sacrosanct. While it is hard to muster any sympathy for AIG, the proposed political machinations to make AIG executives give back their bonuses have broad implications that should be of concern to all clear-thinking citizens. AIG

Congress imposed strings on the bailout money after it had already been accepted by AIG and many other companies, which itself is a bit questionable. But when Congress proscribed companies that accepted the bailout money from paying bonuses, it made an exception for bonuses that were “required to be paid pursuant to a written employment contract executed on or before February 11, 2009.” To pillory AIG for paying out bonuses in accordance with the language chosen by the very politicians who are now screaming loudly about the greedy company seems a mite disingenuous.

Talk about a Hobson’s Choice! If AIG had refused to pay the money, it would have faced a flurry of lawsuits either by individuals or a class of people with very strong legal claims. And for those whose employment agreements called for them to remain with AIG in return for the bonuses, the so-called retainer bonuses, the refusal to pay the bonuses would likely have triggered wholesale departures from the company at a time when it needed them to stay afloat. Indeed, before the current uproar gathered steam, members of the administration opined that AIG had to honor these contracts and pay the bonuses.

Of even broader concern is the effort to get the bonus money back by imposing a 100% tax on it, or by trying to indirectly recover the money from AIG. Since the federal government’s original goal was to assist AIG in avoiding bankruptcy and eventually be repaid by AIG, the government’s current maneuvers could easily end up accomplishing the purpose it has been trying to avoid, a bankrupt AIG and a federal government that is unable to recoup any of the bailout money.

Even more dangerous are the potential long-term impacts. If these schemes are implemented, the resulting precedent would give the federal government carte blanche to violate the Contract Clause of the U.S. Constitution or, if nothing else, result in expensive lawsuits that would probably end with the legislation being overturned. While it may feel good, and win political points, to inveigh against the avaricious company, the truly responsible politicians and other citizens must focus dispassionately on the long term consequences of these actions.

Hablas Ingles? Let’s Hope So If You Sign an Employment Contract Written in English!

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.contractguy

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.