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 (2nd Edition)
Yes, such an agreement is referred to as a mutual separation agreement (or if part of a larger reduction-in-force initiative, an early retirement package). In a mutual separation agreement, the employee agrees to resign in exchange for – most commonly – an ex-gratia payment from the employer. There are no statutory formulas. Instead, the amounts offered are matters of contract; provided that, if an employer policy or regulation (including any collective agreements) stipulate a formula, the employer must follow its policy, regulation, or collective agreement.
In a mutual separation agreement, an employee may waive his right to further claims against the employer, post-termination covenants (e.g., non-compete, non-solicitation), and non-disparagement clauses.
The employer and the employee may execute a mutual termination protocol, but it does not in itself constitute a waiver to initiate a reinstatement claim by the employee. The job security provisions under TLC, allows the employee to claim reinstatement within one month following the termination and the High Court establishes that a waiver from such right to claim reinstatement is not possible. However, as the mutual agreement shall be made in writing and the associated payments shall be made via bank transfers, mutual agreements do mitigate the risk of reinstatement and increase the likelihood of dismissal of such cases as long as a reasonable benefit is paid.
If the employer and the employee reach a termination agreement they are free to exclude the termination payment. However, in most termination agreement negotiations the payment will be considered, because the goal is to end the employment contract without following one of the ‘formal’ routes. Most employees will not sign a termination agreement without any remuneration.
Statutory rights of the employee based on the Dutch labour laws cannot be excluded in return for payment.
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 Commercial Code.
Nevertheless, in practice, such waiver is acceptable where the employee resigns.
A worker can validly waive his right to bring claims under employment legislation by entering into a settlement agreement, provided certain conditions are met. Firstly, the agreement must be in writing and it must relate to specified proceedings or complaints. The worker must also have received advice from a named independent adviser, who is covered by a contract of insurance, on the terms of the agreement and its effect on the worker’s ability to bring a legal claim against the employer. The agreement must also state within it that the conditions regulating settlement agreements have been satisfied.
The prescribed conditions do not apply to the waiver of contractual claims which are commonly included in the same agreement as statutory claims.
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.
An employer and employee may sign a deed of release, waiver and quitclaim (“RWQ”). As a general rule, an RWQ is looked upon with disfavor by Philippine Courts. However, it may be considered valid if the following requirements are present: (1) there was no fraud or deceit on the part of any of the parties; (2) the consideration for the quitclaim is sufficient and reasonable; and (3) the contract is not contrary to law, public order, public policy, morals or good customs, or prejudicial to a third person with a right recognized by law.
There should be two witnesses to the execution of the quitclaim who must also sign. The document should also be subscribed and sworn to under oath.
It is quite common in Israel that upon termination of employment and the carrying out of a final settlement of accounts, an employee is requested to sign a letter of receipt and release of claims towards the employer (“Release”).
According to Israeli case law, such a Release does not constitute a formal bar to future claims by employees. However, a Release may be enforced if the following conditions are met: (1) the employee was aware and had knowledge of the rights that he or she waived; (2) the employee was presented with a clear and comprehensible account of the sums he or she received prior to signing the Release; (3) the Release is clear and unambiguous; and (4) the employee signed the Release of his or her own free will and not due to coercion caused by the employer.
We note that an employee cannot be forced to sign a Release. On the other hand, if the employer decides to pay the employee an ex gratia (voluntary) payment or benefit over and above what it is legally required to pay, the employer may condition such payment upon the signing of a Release.
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 rights set forth in the Swedish Discrimination Act.
Yes, and see above at question 15. Employers should be aware that if such negotiations do not take place on a 'without prejudice' basis and if the parties were to fail to reach agreement, then the employee could disclose such negotiations in court as evidence of the employer's predetermination of the disciplinary procedure rendering it an unfair dismissal.
For any waiver to be effective, the waiver must be in writing, be a validly binding contract and the employer must have given the employee at least the opportunity to seek independent legal advice on the effect of waiving his or her 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.
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.
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.
In China, the employer can reach an agreement with a worker on the termination of employment where the employee waives his rights unless the agreement falls into the scenarios which render the agreement invalid pursuant to the Contract Law of the PRC, such as damaging the public interests, violating the mandatory provisions, etc. Accordingly, this agreement cannot entirely avoid the risk of litigation brought by the employee. The employee retains 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 unjust to the employee or not.
The employer and the employee can terminate, by agreement, the employment contract (with or without indemnity). The employee could nevertheless be sanctioned by the unemployment office because he has voluntarily left his employment.
An alternative is to conclude a settlement agreement after the dismissal of the employee, who will no longer be in a link of subordination towards the employer and therefore can validly waive certain rights. The validity of the settlement agreement depends on mutual concessions by the parties.
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.
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: waiving the right to file a charge with the Equal Employment Opportunity Commission (EEOC), claims under the Fair Labor Standards Act (FLSA) generally cannot be waived, and several states (including – California, Florida, Illinois, New York, and Texas) prohibit waiver of 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.
For the duration of the employment and for one month after its end, the employee may principally 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).
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 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:
(i) 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
(ii) 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.
Yes, subject to limitations. An employee can partly or fully settle issues arising from a personal grievance or breach of contract and forbear from or forego enforcement of his or her rights at law in consideration for payment or other benefits. There must be some form of employment relationship problem that needs to be resolved.
A settlement agreement, however, may not compromise an employee’s minimum entitlements under minimum entitlement legislation including the Minimum Wage Act 1983, the Holidays Act 2003, the Home and Community Support (Payment for Travel Between Clients) Settlement Act 2016, or the Care and Support Workers (Pay Equity) Settlement Act 2017.
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, 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.
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.
Rights which are mandatorily provided by the statute cannot be waived off.