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Separation Agreement Drafting Error Corrected by Michigan Appeals Court

A Michigan appellate court denied an attempt by an employee to receive a severance jackpot based on a drafting mistake made by his former employer. Notwithstanding the employee’s entitlement, based on the terms of his separation agreement, to receive approximately $81 thousand dollars per week for 34 weeks, the State of Michigan Court of Appeals upheld the lower court’s decision to reform the contract, resulting in the employee receiving a total of $81 thousand over 34 weeks. The case highlights, among other things, the importance of proofreading.

The employee was employed for 28 years. In 2014, following the sale of the company, he was permanently laid off in a reduction in force. He was given a separation agreement providing separation pay for 34 weeks, among other benefits, which were consideration for a general release and a covenant not to compete. The employee eventually signed the separation agreement and returned it to the Company.

His execution of the agreement was not surprising. The agreement provided that the employee, who was then earning approximately $125 thousand per year, was to receive $80,805.97 per week for 34 weeks! This amount, which totals approximately $2.7 million dollars, represented more money than the employee had earned over his entire 28-year career with the company.

When the company discovered the error and declined to honor its “promise”, the employee sued to enforce the agreement. The trial court found that a unilateral mistake had clearly occurred, supported by both the testimony of the company’s director of human resources (who stated that she mistakenly inserted the total amount to be received over the 34-week payment period, or $80,805.97, as the weekly payment amount) and the reference to certain separation pay guidelines in the agreement (which provided for a continuation of the employees’ “gross monthly salary” for the specified period.) Accordingly, the trial court reformed the contract to correct the error.

The appellate court affirmed, based in principal part on the employee’s conduct in ignoring the seemingly obvious mistake. Not surprisingly, the Court did not ascribe much credence to the employee’s affidavit, in which he stated his belief that severance pay in excess of $80 thousand per week was “fair based on my 28 years of service.”

The case highlights the importance of proofreading legal documents for easily avoidable drafting errors. The company’s failure to do so here resulted in the expense and aggravation of trial and appellate litigation, and nearly cost the company $2.7 million dollars! It presents a cautionary tale and states a good case for multiple levels of internal review, not to mention the involvement of counsel.

Jackson Lewis P.C. © 2019

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About this Author

Robert R. Perry, Jackson Lewis P.C., labor, employment, benefits, lawyer
Principal

Robert R. Perry is a Principal in the New York City, New York, office of Jackson Lewis P.C. He has more than 20 years of experience in the area of employee benefits law.

Mr. Perry’s practice includes counseling clients on all aspects of employee benefits and executive compensation. Mr. Perry also advocates on behalf of clients in benefits-related disputes, as well as in administrative proceedings before the Internal Revenue Service, the United States Department of Labor and the Pension Benefit Guaranty Corporation.

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