Imagine your employee signing a release and then suing you. That would stink, wouldn’t it?

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Wait. Could the really happen?

Oh, I read a federal court opinion last night where it’s happening right now. And I’ve got the details for you.

But, first, let’s remember that what I’m about to share with you are facts pled in a complaint, and there are two sides to every story. What you’re getting right now is just the plaintiff’s version of the events. And, what the plaintiff claims, in this case, is that:

  • his employer terminated his employment upon his return from FMLA;
  • his employer told him that his separation was part of a reduction in force and that he would be free to apply for suitable future openings;
  • relying upon the employer’s explanation, he signed a general release in exchange for a severance payment;
  • he later learned that his supervisor fired him because of his health; and
  • the company had no intention of ever hiring him back.

Fraud?

The plaintiff alleged that his former employer fraudulently induced him into signing the release (for which he received a few thousand dollars, BTW.)

Under Delaware law, where this case is pending, fraudulent inducement requires five elements:

(1) the defendant falsely represented or omitted facts that the defendant had a duty to disclose; (2) the defendant knew or believed that the representation was false or made the representation with a reckless indifference to the truth; (3) the defendant intended to induce the plaintiff to act or refrain from acting; ( 4) the plaintiff acted in justifiable reliance on the representation; and (5) the plaintiff was injured by its reliance.

In plain English, if the plaintiff knew then what he knew now — but for the employer’s deception — and he would never have signed, then he may have a claim.

And while the plaintiff claimed that the company fraudulently induced him into signing the release, the employer had a bunch of good defenses when it moved to dismiss the plaintiff’s complaint.

First, there was the general release that the plaintiff signed. Second, there was the additional language where the employee acknowledged that he was not relying on “any [prior] representations, promises, or agreements of any kind” when signing the release. In other words, regardless of what the company may have told the employee about his prospects with the company, signing the agreement wiped that slate clean. Third, the employee had the opportunity to have counsel review the contract before he signed it.

These defenses seemed good to me.

But, I don’t wear the black robe. Here’s more from the woman that does:

Here, the record before the Court suggests that the anti-reliance clause was not negotiated or highlighted, but rather exists within a boiler plate merger clause near the end of the document. Unlike many of the clauses of the Release, the anti-reliance language was not set apart, bolded, capitalized, or in any way identified to call it out or signify its importance. Moreover, here, the drafter of the release was a sophisticated party, but the Plaintiff was, by all accounts, an unsophisticated party, and thus … it is possible that the presence of anti-reliance language is not dispositive of Plaintiff’s claims. The Court finds that Plaintiff, on the facts currently before the Court, has made a plausible claim for relief for fraudulent inducement.

Motion to dismiss denied. Uggh!

Employer takeaways.

What’s that dumb saying? You can lead a horse to water, but you can’t force it to drink.

Yeah, ok, I get it. From now on, I’m going to bold, capitalize, and call out the anti-reliance language to set it apart and signify its importance.

Apart from that, let’s recognize that sh*t happens. In the rarest-of-rare situations like the one the plaintiff describes, I mean, whattaya gonna do? Except probably pay a little bit more to resolve the claim for peace of mind because that’s what you were going for when you offered the severance in the first place. Amirite?

 

“Doing What’s Right – Not Just What’s Legal”