Does a Separation Agreement Prevent an Employer from Suing to Recover Money Wrongfully Taken by an Ex-Employee?
Separation or severance agreements are a valuable legal tool that can protect the interests of both employers and employees when an employment relationship comes to an end. It is critical for both sides to honor their commitments under a severance agreement. As with any legal contract, a breach may lead to litigation, which can prove expensive and time-consuming for all parties involved.
Judge Rules Effort to Recoup Severance Payment Not an Attempt to “Revoke or Void” Agreement
An ongoing federal lawsuit in Fort Myers, Habitat for Humanity International, Inc. v. Morris, illustrates the types of legal issues that can arise from enforcement of a separation agreement. In this case, the defendant previously worked at Habitat for Humanity. After a manager “questioned some expenses” that the defendant submitted for reimbursement, the defendant chose to resign from Habitat.
In accordance with Habitat’s corporate policy, it negotiated a “separation agreement and release” with the defendant. In exchange for a $14,960 severance payment, the defendant agreed to release any potential legal claims against Habitat arising from his employment. This included any potential claim for employment discrimination.
After the defendant left Habitat, the company conducted a full investigation into his business expenses. Habitat said it “uncovered evidence of wrongdoing.” It then proceeded to sue the defendant in Georgia state court, alleging “fraud and unjust enrichment.” The lawsuit was later transferred to the federal court in Fort Myers.
In response to Habitat’s lawsuit, the defendant filed his own counterclaim alleging racial and age discrimination. Habitat moved to dismiss these counterclaims, arguing they were barred by the terms of the release contained in the separation agreement. The defendant maintained Habitat was trying to have it both ways: On the one hand, barring him from pursuing his discrimination claims under the separation agreement, while at the same time demanding he return the payment he received under said agreement.
U.S. District Judge Sheri Polster Chappell held, however, that it was the defendant who misconstrued what was going on here. Habitat was not seeking to “revoke or void” the separation agreement. Rather, its demand to recoup the severance payment it made to the defendant was based on “equitable claims” that he stole from the company. And even if the court were to void the severance payment itself, that would not affect the validity of the agreement as a whole, since it contained a “severability clause that ensures the remainder of the contract is enforceable.”
That said, Judge Chappell went on to say that it was not clear based on the evidence before her that the defendant had in fact “knowingly and voluntarily released” his right to sue. But the defendant’s counterclaim also did not contain “sufficient factual allegations” to proceed. Accordingly, the judge dismissed the counterclaim without prejudice, meaning the defendant would be given a chance to refile his allegations of employment discrimination.
A Lesson for All Florida Employers
One thing that may have put Habitat in this position was its decision to complete a separation agreement before fully investigating the defendant’s alleged improper expense claims. All Florida employers should take great care in conducting such internal investigations or audits. If you need advice or assistance in this area, you should contact an experienced Florida employment law attorney right away.