Ehresman v. The Hershey Company: A Sweet Lesson in the Enforceability of Employee Severance Agreements

Introduction

Let’s face it: If you’re an employer, the likelihood that you’ll have to terminate one or more employees over the course of your enterprise is fairly high. Many employers are apprehensive to offload even the most troublesome or useless workers due to the risk of litigation with a disgruntled employee who might bring claims of discrimination or retaliation. Even meritless employment claims are an expensive and frustrating headache for employers. In litigation, victory often isn’t cheap. That’s why a severance agreement is an effective tool to manage the risk of litigation with employees with whom you wish to part ways. Offering employees money or benefits they would not otherwise be entitled to in exchange for their waiver and release of claims can often be a good investment that prevents costly litigation.

But what if you’ve done the smart thing and had an employee sign a severance agreement only to have the employee come back to challenge the validity of the agreement? Such a scenario recently played out in a case involving the Hershey Chocolate Company. Some points from this case will assist you and your business in ensuring that your employee severance agreements are valid and enforceable.

Factual Background

The case of Ehresman v. The Hershey Company¹ involved a patent attorney named Kurt Ehresman, who started working for Hershey as an intellectual property lawyer in August 2013. In February 2016, Hershey promoted Ehresman to Senior Counsel for Global Intellectual Property, and in each of his annual performance reviews, he was rated no lower than “meets expectations.” However, in October 2017, Hershey advised Ehresman that his position was being eliminated and Ehresman was placed on paid administrative leave. During the leave period, Hershey proposed a severance package to Ehresman in exchange for Ehresman’s signing a severance agreement waiving all claims against Hershey. Operating on the assumption that he was receiving a generous severance because his position was being done away with, Ehresman accepted Hershey’s offer and signed the severance agreement on November 16, 2017.

But Ehresman waxed bitter as cocoa when he learned that his departure from Hershey was not quite the amicable “hugs and kisses” arrangement he had been led to believe. In March 2018, Ehresman learned that Hershey had not eliminated his former position, but rather had hired a younger, African-American woman to replace him in the role. Despite his signing the severance agreement, Ehresman, a fifty-two-year-old Caucasian male, brought an action alleging discrimination on the basis of race, color, sex, and age.

The Court’s Decision

Totality of the Circumstances

             Soon after Ehresman’s filing of the discrimination action, Hershey moved to dismiss the lawsuit, pointing to the severance agreement Ehresman had signed waiving all discrimination claims. Ruling on Hershey’s motion to dismiss, the district court first considered the validity of the severance agreement and inquired as to whether Ehresman’s execution of the agreement was done “knowingly and willfully.” In making this determination, the court used a seven-factor “totality of the circumstances” test to decide whether the agreement had been executed knowingly and willfully. Those seven factors, and the court’s analysis for each factor, were as follows:

1. The clarity and specificity of the release language.

The court found that the language of the agreement was both clear and specific, noting that the agreement explicitly stated that it “covers both claims you know about and those you may not know about that have accrued as of the time you sign this Agreement.” The court pointed to the fact that the agreement included examples of the types of claims that the Ehresman was waiving and releasing.

2. The plaintiff's education and business experience.

Noting that Ehresman was “an attorney with over twenty years of experience,” the court found that his “educational and professional experience is sufficient to understand the Release.”

3. Length of time for deliberation.

The court noted that Ehresman “had over a month to review and revise the Agreement before its execution,” and that he was “was therefore given adequate time to carefully consider the Release and was not rushed into signing the Agreement.”

4. Knowledge of legal rights at execution.

Again pointing out Ehresman’s status as an experienced attorney, the court reasoned that Ehresman “would have understood his options at the time he executed the Agreement” and that he “was aware, or at least should have been aware, of his legal rights as well as the possibility that signing the Agreement meant the release of potential legal claims based on employment discrimination.”

5. Benefit of counsel.

Regarding this factor, whether Ehresman was encouraged to seek, or in fact received, the benefit of counsel, it was enough for the court that the severance agreement explicitly encouraged Ehresman to lawyer-up: “You have been advised to consult an attorney before signing this Agreement.” The court rules that his language in the agreement was sufficient to inform Ehresman of his ability to seek legal counsel .

6. Opportunity to negotiate the terms of the release.

This factor was very simple for the court to answer, as Ehresman admitted that he not only had the opportunity to negotiate for more favorable terms, he in fact actually did so.

7. Consideration in return for the release.

The final factor the court examined was whether the consideration given in exchange for Ehresman’s waiver exceeded the benefits to which he was already entitled to by law. Yes, the court decided, because the text of the agreement expressly provided that Ehresman was “receiving severance benefits that he would not otherwise be entitled to in exchange for releasing [Hershey] from liability.”

Taking each of these seven factors into consideration, the court ruled that Ehresman had indeed “knowingly and willfully” executed the severance agreement, which was valid and enforceable to bar his claims against Hershey.

Fraud in the Inducement

Ehresman nevertheless argued that the agreement was invalid because he was fraudulently induced into signing it by Hershey’s false representations that his position was being eliminated. However, the court found that, because the agreement included an integration clause (which is a provision stating that the document contains the entirety of the agreement between the parties), any representation that Hershey made to Ehresman that his position would be eliminated could not work to invalidate the enforcement of the agreement. Put simply, because the document Ehresman signed expressly stated that it contained all of the terms of the agreement, and because it was silent on whether Ehresman’s role would be eliminated, he could not rely on the fact that Hershey had said it planned to eliminate his former position. He was barred from using that as evidence.

Takeaways: What This Case Should Teach Employers

Employers should note what Hershey did right in the drafting and execution of its severance agreement with Ehresman that ended up making it enforceable when Ehresman challenged it. Hershey made sure that the terms of the agreement were clear and specific, that the agreement was drafted so that the employee could understand it, that the employee was given sufficient time and opportunity to review and negotiate, that the employee was advised in writing to seek legal counsel, and that the agreement provided benefits to the employee beyond that to which the employee was already entitled. And Hershey was able to rely on its integration clause that kept prior discussions from being used as evidence.

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¹ No. 1:19-cv-212 (M.D. Pa. Nov. 04, 2019).

Featured Image by Rebecca Sidebotham.