Sherman Law Firm Finds that Bear Stearns' Severance Agreements Include Potentially Costly Condition

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According to Sherman Law Firm sources, Bear Stearns' current severance agreements expressly require departing employees to waive the right to file legal claims against Bear Stearns, JP Morgan, and other entities. In other words, Bear Stearns employees will not receive severance pay and/or other benefits without first agreeing to permanently forfeit the right to sue.

Employers have long offered severance benefits or enhanced severance payments in exchange for a release of all claims. This practice has always been considered a sound way to limit litigation, resolve possible disputes, and finalize the employment relationship.

The Sherman Law Firm has learned that Bear Stearns is using its severance agreements to extract litigation waivers from departing employees. Employees who sign these waivers will forever lose the right to sue Bear Stearns and other companies for almost any cause of action.

The Use and Impact of Litigation Waivers in Severance Agreements

By all accounts, Bear Stearns and JP Morgan are bracing for a tidal wave of litigation from (a) investors in Bear Stearns subprime hedge funds and other questionable investment products, and (b) Bear Stearns shareholders, including employee shareholders (who reportedly owned about one third of the company's common stock in mid-March 2008). Like all major litigation, Bear Stearns-related lawsuits will be expensive to defend in terms of both legal costs and potential liability.

Class action claims and individual lawsuits are being prepared by many law firms (including The Sherman Law Firm) against Bear Stearns on behalf of thousands of employee shareholders. By conditioning severance benefits on an employee's agreement to waive the right to sue, Bear Stearns will eliminate many Bear Stearns employees from contributing to the massive legal costs and high potential exposure of these employee-driven claims.    

According to employment law experts, Bear's litigation waiver condition is not a unique strategy. Attorney Theresa M. Thompson of the Maryland Law Firm Fredrickson & Brown explains how businesses frequently use severance packages to obtain litigation waivers: "Employers have long offered severance benefits or enhanced severance payments in exchange for a release of all claims. This practice has always been considered a sound way to limit litigation, resolve possible disputes, and finalize the employment relationship." Similarly, on Bizriskadvice.com, Attorney Nancy Schess points out that a company "worried about a potential lawsuit, which translates to expense... [should offer severance benefits in order] to have a departing employee sign a release, which is intended to keep the dispute from ever reaching a courtroom."

The Sherman Law Firm has spoken to many Bear Stearns employees who suffered Bear Stearns stock losses that are high enough to cause near term cash-flow concerns. These employees have confirmed that the decision of whether to (a) accept severance pay right now (albeit pay that is nowhere near the amount of their respective Bear Stearns stock losses), or (b) preserve the right to sue Bear Stearns / JP Morgan for far more money in a lawsuit that may not be resolved for several years (and which has no guaranteed outcome), is a difficult call. Most are angry and want to sue. Few, though, were willing to commit one way or the other.

Conclusion

The more employees that Bear Stearns can remove as a litigation threat now, the cheaper the road Bear Stearns and JP Morgan are likely to face as the companies move into the future. Only time will tell how well Bear's decision to dangle near-term cash payments and other incentives to entice Bear Stearns employees to sign away the right to sue will work.

Important disclaimer

In certain jurisdictions, there may be claims that cannot be fully or even partially waived as a matter of law. This press release is based primarily on the comments of Bear Stearns employees, the review of documents by The Sherman Law Firm, and the firm's general legal knowledge.

This press release is not legal advice and The Sherman Law Firm is not responsible for individuals who choose to treat it as such. Any individual Bear Stearns employee who is offered severance should rely on the counsel of his or her own attorney.

BY:

Brett D. Sherman, Esq.
Managing Attorney, THE SHERMAN LAW FIRM
(201) 723-9470
For more on this topic, see The Bear Stearns Law Blog

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