Wednesday, February 24, 2016

Settlement Agreement Failure

Settlement Agreement Failure

Jaffe anticipated that the session with the mediator would be a waste of expensive time because little new would be presented.  Emotions would rise; as the only one with skin in the game, I was a risk, especially because I thought that the unclean hands critique of the emails was nonsense.  From Jaffe’s standpoint, it would be safer to negotiate separately with Layton.

On Wednesday morning after the briefs were submitted, Jaffe offered $75,000, and Layton countered with $24,000, which was $1,000 less than the low end of the bracket Jaffe had proposed.  I gave him permission to counter with $55,000.  While he was working with Layton, I researched the “unclean hands” defense.  I wrote Bifoss that she had misread the law and my situation; she replied, “It is illegal for you to access someone else’s computer files without their knowledge,” referring to the federal Computer Fraud and Abuse Act and the California Computer Crimes Act.  That afternoon, Jaffe informed me that he had settled for $45,000, and two hours later he received a draft settlement agreement from Layton.  Although he had agreed for less than I authorized, I thought maybe it could still work out if the other terms of the settlement agreement were reasonable.  If they simply read, “here is the money, now go away,” maybe I could live with that. 

On Thursday with more internet research under my belt, I told Jaffe and Bifoss that their understanding of the “unclean hands” was incorrect because my roles of CFO and Compliance Officer legally justified my viewing company emails based on my suspicion of wrongdoing.  Given the clear proof of retaliation that the emails provided, we should demand $65,000.  Jaffe said that he stood by Bifoss’ understanding of the law and, anyway, the $45,000 constituted an “enforceable bilateral agreement,” meaning I had to shut up and accept the deal whether I liked it or not.  That evening, Jaffe sent me a copy of the agreement he had negotiated with Layton. 

The document provided that HomeFirst would pay me $45,000 in settlement of all claims I might have against them, and I would not disclose at any time after my employment anything of a secret, confidential, or private nature connected with the business of HomeFirst, make any disparaging comments about HomeFirst, its officers, directors or employees[1], encourage anyone else to make disparaging comments, or disclose the nature or existence of the settlement agreement.

Since I would receive $27,000 after Jaffe’s fees and I had to pay $3,000 to the mediator even though no meeting had occurred, the agreement meant that I would net about two months’ compensation.  That was far from the $100,000 that I had fantasized in March, and the gag order was a nightmare.

I had begrudgingly accepted that a settlement would require that I not disclose the terms of the agreement, but I had not considered that I would never to be able to talk about any of my experience at HomeFirst ever, to anyone.  For two years I had been told to shut up.  I successfully resisted that pressure.  I could not stomach agreeing now to be silent forever. 

The non-disclosure provisions that are increasingly common in employment and separation agreements, aim to squelch whistleblowing with language like, “Employee shall not disclose, and represents that Employee has not disclosed, any confidential company information to any third party”[2].  Some agreements require employees to report violations internally first as the Chair had ordered me, to forego monetary rewards like those from qui tam suits, and to maintain silence on the terms of severance agreements. 

My employment by HomeFirst had not bound me in a confidentiality agreement, but now they wanted even broader protection that extended to any information of a private nature, whatever that was, and to comments that they might consider disparaging.  They treated it as a simple business transaction, and they offered an insultingly small payment, but I wanted them to feel a penalty for having done wrong. 

Although I was principled, I still had doubts.  Since Jaffe’s $5,000 and the mediator’s $3,000 were sunk costs, I was thinking about walking away from $32,000, and for what?  Was I so naïve as to expect not to be restricted in what I could say?  Really, who was I going to talk to about HomeFirst anyway?  And if I did tell anyone, how would they find out?  Would they require annual depositions to see if I had talked?  Take the money and do what you want, some suggested or, at least, wondered. 

On Friday, I told Jaffe and Layton that I would not sign the agreement as written.  They may have been negotiating but not on terms acceptable to me.  Copying Layton earned me a wrist slap from Bifoss and a warning that I had risked a waiver of attorney-client privilege by doing so.  I was so done.

On Sunday evening, I sent Jaffe an amended settlement agreement without the onerous restrictions on my future communications.  Jaffe replied, HomeFirst would not agree to changes in the nondisclosure language.  Batting emails back and forth, I said that I had told him months earlier about having the CEO’s emails without getting a rise from him and I had set $90,000 as a minimum goal in negotiations.  I posed a hypothetical case to clarify the email question: a CFO gathers email proof that his CEO is stealing and provides it to the police; he is fired; are you telling me that his retention of the emails was illegal?  Jaffe never replied.  He was so done, too.

I called Bifoss on Monday.  When I complained about the “unclean hands” issue, she assured me that they were my attorneys and understood such things; not very good attorneys, I said, if they make a mistake like that.  She assured me that the $45,000 was a good result and I would not do better in court.  The restrictions on communications were entirely normal, she said, and not the result of Jaffe’s letting Layton write the settlement agreement.  The same terms were included in every settlement agreement Jaffe negotiated, she promised.  I lamented that I had not learned much earlier, say on June 4, that they would consider two months compensation plus a gag order to be a good result.

My ace negotiator had let me down.





[1] To avoid the legal challenge of determining damages from disparagement, the agreement called for the return of the settlement amount in the event of disparagement.  To ensure the enforceability of the clause, which it described as “material,” it called for me to acknowledge that it was “reasonable”.
[2] Moberly, Richard, Jordan A. Thomas and Jason Zuckerman.  “De Facto Gag Clauses: The Legality of Employment Agreements That Undermine Dodd-Frank’s Whistleblower Provisions.”  ABA Journal of Labor & Employment Law 30 (2014) 87-120

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