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Published: 2008-03-26

Last Chance Agreements-Where a Good Deed May Go Unpunished



Here is a scenario that may be familiar to you. Your Senior Vice President in charge of sales comes into your office and asks for your assistance with a difficult problem she is having. One of her best salespeople, who has been with the company for almost 20 years and consistently is one of your best rainmakers, has been seriously underperforming the last six months or so. Specifically, he has missed meetings, called in sick more often than usual - in particular on Mondays - and has been irritable and rude to employees and clients. The final straw, however, was at a meeting the previous day in which he was acting so erratically and unprofessionally that the client had to ask him to leave its premises. The employee also was visibly intoxicated.

The SVP tells you, based on what she has seen and heard, that she believes that the employee has developed a substance abuse problem. All of the signs are present: blood-shot eyes, long stretches behind closed doors, excessive absenteeism and tardiness, and rapidly deteriorating performance. You ask the SVP whether she wants to terminate the employee based on his misconduct at the client meeting. She says no, that the employee is one of her best, and she wants to keep him. She indicates that it is her belief that if he went through a rehabilitation program, he would overcome whatever his problems were, and he would return to being a stellar performer.

Your first inclination is to tell your SVP that "no good deed goes unpunished," and the company is not allowed to force an employee to attend rehab or monitor an employee who voluntarily enters rehab. You also want to advise the SVP that it would be better not to mention to the employee that you thought he had a substance abuse problem, because under the Americans with Disabilities Act ("ADA"), the New York State Human Rights Law, and the New York City Human Rights Law, it is unlawful to discriminate against an employee who you perceive as being disabled. If you approach the employee with your suggestion of rehab, he will contend he has evidence that you perceive him to have a substance abuse problem. It is also unlawful, except in limited circumstances, to require an employee to undergo medical testing or treatment. So, it appears that, regardless of your SVP's intention to help the employee, the company's only choices are to discipline the employee, or do nothing.

But there is another alternative. Borrowing from the union arena, companies are increasingly approaching employees with a Last Chance Agreement ("LCA"), which gives the employee an alternative to termination of employment: executing an LCA in which the employee agrees to enter a rehabilitation program. After successfully completing the rehab program, which may be monitored by the company, the employee returns to work and agrees that any further misconduct will result in immediate termination. Basically, an LCA is the company's chance to help its employee kick whatever substance abuse problem he or she has, and also ensure that its performance and behavior standards are adhered to. And the best part is that such arrangements have been blessed by courts as not violating the ADA, or state or city anti-discrimination statutes.

For example, in Mayo v. Columbia University, No. 01 Civ. 2002 (LMM), 2003 U.S. Dist. LEXIS 5639 (S.D.N.Y. April 7, 2003), Judge McKenna held that the employer, Columbia University, did not violate the ADA by terminating an employee who failed to abide by the terms of an LCA. After about six years of employment, the plaintiff, Mayo, was absent from work without prior authorization for about 10 days. During a meeting in which Mayo's supervisors were discussing his unauthorized leave, Mayo called and told his supervisor that he was an alcoholic and that he needed to get into a program.

Columbia presented Mayo with an LCA detailing the conditions of his return to work. The LCA contained the following conditions:

1. You will provide [Columbia] with a letter attesting to your admission to an accredited program of treatment and rehabilitation for alcohol abuse by [DATE]. The period of time spent in a treatment will be considered a medical leave of absence as FMLA.

2. For In-patient treatment Program: You must fully comply with and complete the treatment program to which you are admitted. Certification of completion from an authorized counselor in the program must be submitted to [your manager].

3. For Out-patient Treatment Program: You must fully comply with and complete the treatment program to which you are admitted, you must also submit a weekly progress report from an authorized counselor in the program . . . attesting to your continued participation in the program and compliance with its requirements.

4. Failure to comply with the above will result in the termination of your employment.

5. In closing, you should also be advised that upon returning to work you will be expected to correct the problems related to your attendance and work performance. Failure to do will result in the termination of your employment.

After entering an in-patient treatment program, Mayo and Columbia differ on how diligent he was in submitting the required paperwork to the company. Ultimately, because it found that Mayo continually missed deadlines for submission of the documentation, Columbia terminated his employment. Mayo sued Columbia, alleging that he was terminated because of his disability (among other claims). The court granted Columbia's motion for summary judgment because it proffered a legitimate, non-discriminatory reason for terminating Mayo's employment - that he failed to meet the conditions of his LCA. Specifically, the court held that it was likely that Mayo would have been terminated had he not requested a medical leave to pursue treatment for his alcoholism because his unplanned absence was his fourth such absence. Instead of terminating Mayo, Columbia gave him a paid medical leave of absence.

The court cited numerous cases from other circuits that similarly held that violation of LCAs constitutes a legitimate, non-discriminatory reason for terminating an employee. Thus, Columbia was not punished for doing a good deed - for assisting an employee in need instead of terminating him initially. It was also not found to have discriminated against Mayo when he did not comply with the terms of his LCA.

Moreover, although not an issue in the Mayo decision, in a recent case out of the Eighth Circuit, Longen v. Waterous Company, No. 02-3297, 2003 U.S. App. LEXIS 21190 (8th Cir. Oct. 20, 2003), the plaintiff alleged that the LCA itself violated the ADA because it subjected him to employment conditions that differed from the company's other employees (e.g., it required him to attend treatment and report back to the company regarding his progress). The Court of Appeals, however, held that because all return-to-work agreements, by their nature, impose employment conditions different from those of other employees, and because the terms to which the plaintiff agreed were supported by valuable consideration (i.e., that he would not be terminated), the LCA did not violate the ADA. The court also pointed to the fact that the plaintiff was not coerced or made to sign the LCA under duress. Thus, because the plaintiff voluntarily placed separate restrictions on his conduct that were permitted by the ADA, he could not challenge the validity of the LCA.

As these cases indicate, companies can assist their employees by offering a Last Chance Agreement in lieu of termination. If you decide to offer an employee a Last Chance Agreement, please keep the following in mind:

(1) Make sure that the employee has committed on-the-job misconduct or otherwise has performed in an unsatisfactory manner warranting termination. It is critical to identify a work-related issue. Otherwise, the entire premise for the LCA will not be present - that the employee could be terminated now, instead of being offered a last chance. It is also illegal to discriminate against an employee with a disability if that disability has not impacted his or her job.

(2) Does the company want to pay for the rehabilitation program? You should also check with the benefits department to see if the company's health insurance covers substance abuse rehabilitation (provided, of course, that the employee is on your plan).

(3) What are you going to do if the employee denies that he or she has a problem, or otherwise refuses to abide by the terms of the LCA? In such a case, you should be prepared to terminate the employee based on the misconduct or performance issue that led to the offer of a last chance.

(4) The LCA also should include a provision that gives the company the ability to monitor the employee's attendance and satisfactory completion of the rehabilitation program.

(5) Make sure that the LCA contains a statement that the LCA does not alter the employee's at will status (if applicable).

If you would like to receive a sample form for a Last Chance Agreement, call or email Robert H. Cohen. Mr. Cohen is an attorney at Davis & Gilbert LLP in New York City where he concentrates his practice in labor and employment law. He can be reached at (212) 468-4958 or rcohen@dglaw.com.