Litigating Breaches of a Severance Agreement: Choice of Law, Choice of Forum, and Legal Dispute Method Clauses

Severance Agreement
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Severance agreements often have clauses that dictate where and how to resolve any legal disputes that may arise from the severance package itself. Note that these clauses address a separate issue than the terms that involve the mutual or general release of claims, which govern potential lawsuits resulting from the employee’s period of employment or from the process of termination.

On the other hand, these choice of law, choice of forum, and/or legal dispute method clauses dictate how lawsuits arising from the severance agreement itself will be resolved. These clauses would have a major impact on any litigation that could arise if you or your employer believe that a breach of the severance agreement has occurred.

What do these clauses mean for you? While we hope that this post can help you better understand the legalese in front of you, nothing you read online will substitute for a conversation with an experienced lawyer who can look at your specific agreement and talk you through your options. If you are looking for help understanding your severance agreement, reach out to our office here. With that said, let’s cover some basics.

Choice of Law

Let’s first look at the choice of law clauses. Basically, these are an attempt by your employer to set in stone the jurisdiction under which any dispute arising from the severance agreement would be adjudicated. Laws vary from place to place; your employer is likely trying to pick an arena that it is familiar with or that it believes will be favorable to it. The employer may even have created the agreement specifically to align with the law of a particular jurisdiction. The choice of law clause will say something like:  

  1. Governing Law. This Agreement shall be governed by and subject to the laws of the Commonwealth of Virginia.

With this clause, any dispute arising from the agreement would have to be litigated under Virginia law. If either side sued to enforce one of the terms of the agreement, it would do so using Virginia law.

Choice of Forum

severance agreement mapNext, let’s look at the choice of forum or forum selection clauses. Where choice of law clauses determine the law governing the agreement, forum selection clauses determine, physically, where any dispute will be litigated. Usually this will be a particular court that the employer is familiar with and that is literate in the employer’s choice of law. Under our example, if the agreement specifies that any disputes will be governed by Virginia law, the employer will almost certainly choose a court in Virginia that is also close to the employer’s primary place of business. This clause will likely also specify whether a dispute will be litigated in federal or state court. Let’s look at another quick example: 

  1. Forum Selection. ABC Company and Jane Doe each agree to submit to the exclusive jurisdiction of the United States District Court for the Eastern District of Virginia, Alexandria Division (the Virginia Forum), as applicable, in connection with, or incident to, any dispute, claim, case, controversy, or matter arising out of or relating to this Agreement, to the exclusion of the courts of any state, territory, or country other than the Virginia Forum.

In this example, the company has chosen the forum of the Eastern District of Virginia. Specifically, it has chosen the Alexandria federal court. If the employee agrees to this clause, any disputes arising from this severance would be handled in the Alexandria U.S. District Court. This is recognizable as a federal court because its name includes “United States.” If the employer had selected a state court, its name would include the name of the state.

Legal Dispute Method

Finally, let’s look at the clauses that determine the legal method by which the dispute will be resolved. Under these terms, the employer is dictating that all legal disagreements arising from the severance will be decided in a particular fashion. Generally, the legal dispute method takes one of two forms: a waiver of a right to a jury trial and/or an agreement to litigate any claims through arbitration.

A waiver of a right to jury trial means that any dispute arising from the agreement would be tried in court but in front of a judge rather than a jury of your peers. Employers will do this because juries tend to be more sympathetic to individuals and less sympathetic to mean employers that are coming after the little guy. Employers don’t want this, as they are trying to limit their liability and increase their chances of winning if they sue you for breach of the agreement.

Under arbitration agreements, both sides are agreeing to pursue any legal claims arising from the agreement through arbitration rather than through a lawsuit. So, what is arbitration? For one, it is divorced and separate from the state or federal court systems. Arbitrators are private citizens (often retired judges) who hear and decide cases.

There are some benefits to the arbitration process. The most commonly cited benefit is speed: arbitration will almost always be much faster than a court case. Also, arbitration is much less formal and lacks many of the confusing and restrictive rules that can make court difficult for employees. However, there are serious downsides as well. Studies have demonstrated that arbitration between employers and employees statistically results in fewer wins for employees and in smaller monetary settlements when employees do win. The employer will likely be much more familiar with the process and even with the particular arbitrator to be used. Finally, the arbitrator also has an inherent incentive to give more favorable outcomes to the party that is bringing it business. Remember that an arbitrator is a private business, not a state or federal institution.

Summing It Up

Through choice of law, choice of forum, and legal dispute method clauses, employers try to give themselves the best odds possible of prevailing or at least limiting damages in any dispute that results from a severance agreement. However, while employees can try to negotiate these clauses, it’s questionable whether these issues are worth the effort, time, and cost required to renegotiate. These clauses only apply if one party breaches the agreement; they won’t save either party from liability following an outright and obvious refusal to follow the terms of the agreement.

Again, before you engage your employer or former employer on these issues, it is best to talk with an attorney who can look at your specific severance agreement and talk you through the various costs and benefits relevant to your exact situation. Please contact our office to let us know how we can help you.

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