Can an employer reach agreement with a worker on the termination of employment in which the employee validly waives his rights in return for a payment? If yes, describe any limitations that apply.
Employment & Labour Law
Yes, an employer may do so. Employers may in some cases pay an additional sum as an ex gratia payment in exchange for the employee entering into a termination agreement (usually incorporating waivers of rights and liabilities) with the employer.
As regards the limitations that apply, the agreement should not contain terms that breach any laws. This includes the following prohibitions:
- the EA prohibits employers and female employees from contracting out of any right to maternity benefits to the extent that doing so deprives the female employee of that right or removes/reduces the liability of the employer to make the required payments pursuant to such benefits; and
- the Retirement and Re-Employment Act prohibits employers and employees from (a) contracting to exclude or limit the operation of the Act or (b) contracting to preclude any person from making a representation, claim or application under the Act.
Separation agreements are not required under U.S. law, but are commonly entered into whenever the employer provides any termination- related payments on severance. Such agreements must generally meet a number of requirements to be enforceable, including the following: (1) the waiver must be knowingly and voluntarily executed by the employee; (2) the process for obtaining the waiver must be free of employer fraud, undue influence, or other improper conduct; and (3) the agreement must be supported by consideration over and above any benefits to which the employee is otherwise entitled.
Certain claims however, cannot be waived as a matter of law. Such claims include: charges with the Equal Employment Opportunity Commission (EEOC), most claims under the Fair Labor Standards Act, and (in states such as California, Florida, Illinois, New York, and Texas) claims for unemployment and/or workers’ compensation benefits.
Further, specific criteria must be satisfied for a waiver of federal age discrimination claims to be considered “knowing and voluntary” under the Older Workers Benefit Protection Act (“OWBPA”), as discussed above in response to Question 4.
Yes, an individual agreement could be reached in this regard.
In any case, please take into consideration that if the unfairness of the dismissal will be acknowledged by the employer, the agreement must be reached before the Conciliation Administrative Service/Body (SMAC), in order to validly apply the tax exemption over the statutory unfair dismissal severance. The SMAC will issue the corresponding conciliation act/record, and such record/act will expressly state that once the payment is made by the employer, the parties will be fully settled and therefore the employee will not be entitled to file any kind of claim against the Company in relation to the labour relation.
Turkish case law allows the employer and the employee to agree on the terms of a protocol on mutual termination of the employment agreement under certain conditions. Despite the fact that the Labour Law does not set forth any specific provisions with respect to the mutual termination of the employment relationship, however, such transaction is accepted before the Court of Cassation of Turkey. According to the precedents of Court of Cassation, a mutual protocol signed among the parties to an employment relationship shall be deemed as valid if the employer grants an "additional benefit" which should be equal to at least 4 month's salary to employee along with the applicable statutory redundancy package (see Question 15).
Even if a protocol is executed among the parties and the employee waived his/her rights, the employee may still claim its reinstatement to employment and compensation under the Labour Law.
Employers may reach settlement agreements with their employees to terminate employment agreements and obtain release form employees.
Under these agreements, the employees may waive their uncertain and disputable rights and the employer should monetarily compensate such waiver for the settlement agreement to have the effect of res judicata.
For the duration of the employment and for one month after its end, the employee may not waive claims arising from mandatory provisions of labour law or a collective agreement (see art. 341 para. 1 of the Swiss Code of Obligations).
Apart from these limits, it is however recognised by doctrine and jurisdiction that the employee can waive any of his/her claims in the context of a termination agreement as long as it is not concluded in order to circumvent safeguarding provisions for the benefit of the employee respectively sufficiently reconciles the employer’s and the employee’s (particularly financial) interests.
Yes, an employer can reach such an agreement with an employee.
In principle, there is no limitation on the waiver of employee’s rights as long as the employee consents voluntarily. Notably, however, recent court decisions have shown a reluctance to acknowledge the employee’s voluntary consent especially in cases where the employee waives a significant portion of his rights. Employers are encouraged to provide a detailed and accurate explanation on the content of the rights to be waived before obtaining the employee’s consent.
Where the employee is terminated, any agreement entered by the employee to waive the right to claim statutory payments for termination is void under Section 150 of the Civil and
Nevertheless, in practice, such waiver is acceptable where the employee resigns.
It is possible to enter into agreement with the employee to mutually terminate the employment in consideration for a lump sum payment towards his dues arising out of the employment. In such a case, the cessation of employment can be recorded as a mutual separation between the employer and the employee. The lump sum amount paid to the employee in a mutual separation is typically over and above the statutory and contractual dues payable to the employee. However, it is not possible to contract out of payment of statutory dues. Given that this method requires one-on-one negotiations with the employees, it is difficult to implement where the number of employees proposed to be terminated is large.
In order for this type of agreement to be considered valid in our country, it is necessary to fulfill the legal requirements of a transaction (usually referred to as “settlement agreement”) between both parties. The requirements are the following: the existence of a pending or potential litigation, the performance of mutual concessions, the object of the transaction should refer to dubious or uncertain rights and the employee must sign the agreement duly assisted by a legal counsellor.
In case any of the previous requirements is missing, such agreement can be considered null due to the principle of inalienability of labour rights. Under this principle, the worker is unable to voluntarily deprive himself of the guarantees provided by labor legislation, even for his own benefit.
An employee cannot waive his rights under the Labour Law.
In China, the employer can reach agreement with a worker on the termination of employment where the employee waives his rights unless the agreement falls into the scenarios which make the agreement invalid based on the Contract Law of the PRC, such as damaging the public interests, violating the mandatory provisions, etc. Accordingly, this agreement cannot entirely avoid the risks of litigation brought by the employee. The employee still has the right to sue and the judge will consider all the relevant rights of employee to determine whether this agreement meets the abovementioned exceptions or whether it is obviously unfair to the employee or not.
An employee may waive his contractual rights. As a general rule, an employee cannot waive rights laid down in mandatory law. However, an employee may under certain circumstances waive mandatory rights, e.g., where a dispute has arisen regarding the mandatory right. Please note that an employee cannot waive his rights according to discriminatory law.
A mutually agreed termination (“rupture conventionnelle”) permits to end the contract while avoiding any legal challenge about the justification of termination (unless the employer fraudulently resorts to said termination to avoid a legally mandatory procedure such as redundancy). Yet such termination does not bar the employee from claiming amounts pertaining not to the termination, but to the employment relationship itself (salary or overtime back pay, damages for harassment, etc.).
As an alternative, the employee and the employer may enter into a settlement agreement subsequently to dismissal, in which case the employee may validly waive his rights to sue the employer. Said settlement implies the payment of a settlement indemnity.
In general, an employee will not be able to successfully challenge a termination in return for a payment unless pressure has been applied on the employee to consent.
If an employee signs a release in exchange for a separation package upon termination of employment, common law claims can be waived. However, in order for the release to be effective, there must be valid consideration. A separation package will not be valid consideration unless the employer provides the employee with amounts exceeding those that he or she is already entitled to under contract or statute. A payment that simply meets the requirements of employment standards legislation is not valid consideration.
Even if there is valid consideration, a settlement agreement may be deemed by a court to be unconscionable if the four elements of unconscionability are present in the circumstances of the case:
- a grossly unfair and improvident transaction;
- the victim’s lack of independent legal advice or other suitable advice;
- an overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
- the other party’s knowingly taking advantage of this vulnerability.
A court may, for example, conclude that a separation package and release is unconscionable if an employee signs under duress and without a genuine opportunity to obtain independent legal advice.
Yes, the worker can validly waive his/her rights by entering into a settlement agreement with the employer after the termination of employment (at that point, any risk of pressure onto the worker disappears). In order to be valid, the agreement cannot reveal a lack of consensus, it must also set out mutual concessions made by the parties and must include an explicit and accurate waiver clause.
Yes, under Italian law it is possible to sign a settlement agreement where the employee validly waives his rights in return for a payment. However it is necessary that the settlement agreement is executed in front of specific bodies (i.e. Labour Office, Unions, Court).
In fact, according to Section 2113 of the Italian Civil Code, where the subject-matter of the waivers/settlement concern the individual’s employment rights arising from mandatory provisions of law (such as the right to challenge the termination) or collective agreements or arrangements concerning the employment relationship, such waivers will be invalid unless the agreement is signed before a competent body (trade union, labour council or labour court). If not signed before such bodies, the waivers/settlements will be considered invalid and can be challenged within 6 months from (i) the date of termination of employment or (ii) from the date of the waiver/settlement if agreed post-termination of employment.
In Italy the employer does not have to offer the employee financial consideration in exchange for (i) agreeing to enter into the agreement and (ii) in order to obtain an effective waiver of claims/withdrawal from started litigation. However, this is very common in practice as an incentive to obtain the employee’s consent to the agreement. In this regards, the employer may offer the employee an “incentive to leave” payment. This amount is deemed to be “efficient” from an economical perspective both for the employer and the employee as it benefits from a full exemption from social security contributions and from a more favourable taxation treatment.
It is worth noting that employees hired as from 7 March 2015 benefit from a “quick settlement procedure” introduced by the Legislative Decree no. 23/2015. In particular, the quick settlement agreement consists of an offer by the employer to the employee, made within 60 days from the date of the dismissal, to pay compensation equal to 1 month’s salary per year of service, with a minimum of 2 and a maximum of 18 months compensation (for “small” companies the indemnity is reduced at a half and the maximum is 6 month’s salary).
This indemnity is not subject to tax or social security contributions and will be immediately paid by the employer via a ‘cash cheque’. If the offer is accepted by the employee, all rights to object to his/her dismissal will be waived. In the same settlement agreement, the parties could also decide to waive all rights in relation to the employment relationship, but any amount granted for such waivers will be subject to ordinary taxation and social security contributions as provided for under Italian Law.
It is permissible and standard in Luxembourg for parties to enter into a settlement agreement. A settlement agreement aims at terminating a dispute or at preventing a dispute from arising.
Entering and executing a settlement agreement will result in the termination of the rights in relation to the contestation or dispute as defined in the settlement agreement (for example: rights to claim compensation for damage as a result to the employment termination) and will have a binding and final effect.
Settlement agreements require the following conditions to be fulfilled:
- It must be documented in writing;
- There must be a dispute that has arisen or that will arise between the parties;
- The intention of the parties to put an end to the contestations;
- The parties must make reciprocal concessions;
- The consent of the parties must be free;
- The parties may only waive rights they are entitled to (i.e. existing rights and not eventual or future rights).
Yes, he can. This is especially common in cases of mass redundancies due to operational reasons. The employer pays an extra sum and the employee waives his right to sue for dismissal protection.
Yes. There are no legal provisions or restrictions regarding terminating an employment contract based on a mutual agreement and it is a common practice used in cases where the employer might not yet have legal grounds for termination but is no longer willing to continue the employment relationship. Such agreements commonly contain provisions on e.g. compensation, waiver of future claims, loyalty, secrecy and returning of the employer's property. Depending on the position of the employee, severance agreements may also contain provisions on the employer's right to collect and read the employee's work related mail for a certain period of time after the termination, intellectual property rights, post-termination non-competition and non-solicitation obligations and liquidated damages related to breaching these restrictive covenants.
The amount of the severance compensation often starts from the equivalent of the employee's salary for three months. This is due to the fact that by terminating the employment relationship with a mutual agreement the employee loses his/her right to unemployment benefits for 90 days. Further, as the statutory minimum for compensation for illegal termination starts from the employee's salary for three months, employees are often not willing to settle for less than their salary for the applicable notice period added by at least their salary for three months.