Vivian Berger Mediator

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After the Handshake: Don't Let Settlements Evaporate

Fall/Winter 2007

It's 7:00 p.m., and after a long hard day's mediation, the case has settled. The employee prepares to move on with his life. The employers' representatives, the lawyers and the mediator promptly turn to what's next on their plates. Everyone breathes a sigh of relief — perhaps too soon.

However, in my employment mediation practice, I have noticed that instead of being the beginning of the end, the handshake agreement often merely signals the end of the beginning. Informal resolution too often serves only as a prelude to quarrels over what exactly was agreed to, delays in delivery or signature of the formal documents, pitched battles over boiler plate language, and neglect by the company to follow up with timely payments. At times, counsel's inattention to their clients during the aftermath of the session allows the employee to become disaffected or managers to act in ways perceived as retaliatory. The bad feelings caused by post-mediation failures in follow-up and communication can derail hard-won settlements. Derailment can also result from simple procrastination, as parties fall prey to settler's remorse.

These types of problems are probably more endemic to employment matters than to standard business cases since feelings play such a large role in the underlying conflict, and employees sometimes appear pro se. To avoid breakdown, the mediator must take proactive steps to ensure that any settlement is durable. For example, even though clients may be in a hurry to finish, a good mediator will take the time to ask questions and seek accord on the finer points of agreement. She may also offer the parties the option of signing a term sheet expressly stated to be binding in the absence of formal documents. This should only be done, however, if the clients have had a chance to consult with their attorneys before signing anything. The mediator should also remain in the wings, ready to step in when needed to smooth the path to a truly final and lasting resolution.

Consider, first, the desirability of a Memorandum of Understanding (MOU). Non-attorney mediators may not have clients sign MOUs, but many attorney-mediators do offer this option to clients. Signed at the mediation's end, the MOU should, at the very least, set out the agreed-on terms, such as the amount and timing of monetary payments or provisions for a reference or for permitting the employee to resign in lieu of discharge. Such a precaution is a no-brainer, guarding against not only genuine misapprehensions but also lack of recall or bad faith reconstruction of what occurred during the session. Less obvious, but sometimes equally important, the writing should contain some reference to standard provisos such as waiver and release of claims, confidentiality, non-disparagement, agreement not to seek reemployment, and characterization of settlement awards for tax purposes.

If nothing else, attention to these matters will tend to unearth latent problems while all participants are still present and in mediation mode. For instance, in a buyout arrangement involving a long-time hotel concierge, addressing the no-rehire provision in the MOU made the parties recognize that the employer's standard language would have barred the employee from working at my of hundreds of affiliate entities — potentially wrecking his career. This early alert prompted them to reach accord on narrower wording, which avoided a landmine down the road. By contrast, in another case, failure to cover taxation in the MOU led to a post-mediation dispute over whether the amount should be "I099'd" or "W-2'd." When the employee understood that his check would be net of taxes, the agreement came close to falling apart.

Finally, the memorandum should state whether it is meant to be binding in the absence of more elaborate documentation and, if appropriate, that it comprises all bargained-for terms. The critical nature of these provisions became apparent in the case of a pro se employee who had struck an excellent deal for a payment of $20,000 with the aid of pro bono counsel for mediation purposes only. At the last minute, the employer hospital's representative volunteered to see whether an associated university client would treat the employee's severe dental disease at no charge; plainly, no results were promised. The MOU, which was completed after I had left, did not mention this collateral matter — or even contain a "best efforts" promise or a “merger" clause, or indicate if the parties were bound. When the hospital failed to procure free treatment, the employee reneged, claiming that obtaining free treatment had been a condition of his assent. The hospital countered by moving to enforce the MOU. It took me weeks of work with the disaffected client to put this Humpty Dumpty of a deal back together again. Hindsight reveals that better drafting of the MOU could have prevented this near-debacle.

Some lawyers bring form agreements to the mediation; the parties can thus nail down the settlement on the spot. But often more needs to be done before final documents are signed, or a law like the Age Discrimination and Employment Act (ADEA) imposes a "cooling off" period. The employer (usually the initiator) should dispatch the paperwork promptly; otherwise, the employee may feel neglected and disrespected. Such negative emotions tend to overshadow the rational considerations that led to settlement and thereby place the bargain at risk. Employers may also get cold feet if employees delay in executing the papers. Breakdown is a particular danger when either side has reservations about the agreement or, on the employer's side, new decision-makers replace the ones who signed off on the terms. Accordingly, the mediator should spur dilatory parties to action.

Yet even well-done MOUs cannot cover every contingency, and gratuitous procrastination or unforeseen problems may hinder culmination of the deal. Clients, for example, may act in ways guaranteed to sabotage settlements. In one of my highly contentious cases, where the employee was still on the job, final papers had actually been signed by both parties. The ADEA, however, prescribed a seven-day revocation period; the employers suspended the employee two days after execution of the papers. Nothing she had done warranted this extreme reaction, especially when the brokered accord called for rescission of a prior suspension. Predictably, the furious employee withdrew her consent. She decided to "run the clock" until she could resign with full retirement benefits. As a result, her witless employers had to endure an even more difficult and hostile worker for the better part of a year, or fire her and risk a union grievance, a serious retaliation charge, or likely both. Possibly, the employer's lawyers — coached by the mediator — could have forestalled this unfortunate outcome had they kept closer tabs on the client during the crucial post-signature week.

More typically, initial agreements threaten to collapse on account of disputes about specific provisions or language proffered by one or the other party for inclusion in the formal documents. The mediator is well-equipped to assist the clients in reaching closure in such situations, especially as they quite often involve concerns that are not strictly rational. My most difficult case of this kind featured a tenacious pro se employee, whose pervasive distrust and anxiety were permitted to smolder untended because the employers failed to send her documents to sign for several months following mediation. When she did receive the papers, she went to war with the boiler plate — perceiving either insult or risk in the most routine terms. I was brought in to remediate the matter.

A unifying theme of the employee's complaints was an understandable sense of resentment at the one-sided nature of standard provisions like non-disparagement, confidentiality and release. The employers agreed to make these mutual, despite the fact that the company plainly had no interest in publicizing a rather generous payment to her, nor did it have any claims against her. Unfortunately, the employee insisted that the contract language be fully reciprocal even where this was patently senseless. As I pointed out, corporations do not have "heirs" or "executors," and the employee really had no need to protect her "immediate family members, current heirs, attorneys" or other representatives from defamation by the employers! On some issues, she ultimately took my advice and backed off. Regarding the rest, I persuaded the employers to defer to her since doing so produced no damage except, perhaps, embarrassment over the peculiar verbiage.

The oddness of the desires of this pro se employee should not obscure the broader point that even well-represented parties sometimes need the mediator's help in "sealing the deal" after the mediation has ended. The neutral can usually furnish specific drafting suggestions designed to meet practical problems or dignitary needs. She can always remind the parties of the reasons that originally prompted settlement and continue to push for it as well as encourage timely fulfillment of their promises. Most fundamentally, the good mediator knows "it ain't over till it's over" — whenever that may be — and displays the patience and perseverance to bring agreements to fruition.