The Scope of General Releases within Employee Separation Agreements

By: Leo K. Barnes Jr.*

*Mr. Barnes, a member of Barnes & Barnes, P.C. in Melville,

can be reached at LKB@BARNESPC.COM

 

Recently in WSP USA Corp. v. Marinello, 2013 WL 6704885 (S.D.N.Y. 2013), a  Southern District of New York decision analyzed whether a broad separation agreement and release executed upon an employee’s voluntary departure from his employment will bar claims made by the former employer.

According to the decision, plaintiff WSP USA Corp. (“WSP”) is an engineering consulting firm, and defendant John Marinello is a former employee who began employment with WSP in 2001, and worked in the company’s New York office through January 2013.  Unbeknownst to WSP, on or about November 29, 2012, defendant Marinello accepted an offer of employment from Syska Hennessy, a direct competitor of WSP, and signed a letter of employment with a January 31, 2013 start date.  It was alleged that Marinello did not give notice to WSP at the time he accepted the offer.

Thereafter, Marinello gave notice to WSP that his last day of work would be February 19th.  On February 28, 2013, the parties executed a Separation Agreement and General Release (the “Agreement”), which provided a payment of $26,500 to Marinello.  The Agreement contained specific provisions relating to protection of confidential information and separate releases by and between the parties.  With respect to confidential information, the Agreement provided that Marinello “will not directly or indirectly (without [WSP]’s prior written consent), use for himself or use for, or disclose to, any party other than [WSP], any Confidential Information.”  The Agreement further provided that to the extent Marinello is in possession of confidential information, he shall promptly deliver to WSP all items evidencing, representing, or otherwise relating to said confidential information.  The Agreement defined confidential information broadly and included “any data or information regarding the business of [WSP] that is not generally known to the public which has economic value, and which the company keeps confidential …”.  Separately, the Agreement included parallel general release provisions for both WSP and Marinello, that released “any and all claims, known and unknown … which the Company has or may have against [Marinello] as of the date of execution of the Agreement and General Release.”

Subsequently, WSP commenced an action against Marinello for breach of contract, misappropriation of trade secrets, defamation, conversion, and sought an accounting.  Specifically, the Complaint alleged numerous instances of alleged misconduct, including:

  • That upon Marinello’s voluntary departure from WSP, he appropriated and retained confidential company information in violation of the parties’ Agreement, and, upon information and belief, shared that information with his new employer;
  • That he failed to return valuable electronics equipment belonging to WSP (including two laptops, an iPad and three phones), and that he ignored requests to return the items; and
  • That on or about May 1, 2013, Marinello had opened a Twitter account using WSP’s name, and that he posted “libelous and disparaging” statements about the company.

Marinello moved to dismiss the Complaint in its entirety, pursuant to Rule 12(b)(6), arguing that a general release provision in the Agreement barred WSP’s claims.  Applying New York law, the Court held that the express language of the Agreement established that WSP released “any and all claims, known and unknown, asserted or unasserted” that WSP had or may have had as of the February 28, 2013 execution of the Agreement.  Thus, the release barred WSP not only from bringing claims that were in existence on February 28th, but also barred claims that had not yet been discovered.

The Court held that because WSP’s claims for breach of contract, misappropriation of trade secrets, and conversion did not arise until after the Agreement’s execution, those claims were not barred by the release.  However, the Court held that WSP’s claims for defamation and an accounting were barred by the release provision, and dismissed the same.

Concerning the breach of contract claim, the Court noted that although Marinello may have accessed the confidential information prior to execution of the Agreement, the Complaint alleged ongoing conduct that specifically violated the Agreement, namely that he retained WSP’s confidential information and shared it with his new employer.  Thus, the Court found that the Complaint sufficiently alleged a breach of contract claim.

For the same reasons, the Court found that the Complaint plausibly alleged that Marinello misappropriated trade secrets.  The Court noted that WSP’s claim is not premised merely on Marinello’s alleged improper access of company information during his employment at WSP, but also his subsequent ongoing misuse of this information. As such, WSP’s misappropriation claim was not barred by the Agreement’s release provision.  Concerning Plaintiff’s conversion claim based upon Marinello’s failure to return various electronics equipment, the Court noted that “a conversion does not occur until after a demand and refusal to return the property” where the original possession is lawful, and this plaintiff had no conversion claim until June 2013, when defendant allegedly refused plaintiff’s demand.  As such, the Court held that WSP’s arose after the execution of the Agreement and was not barred by the release provision.

In dismissing WSP’s defamation claim, the Court held that because the Complaint does not identify any statements that postdate the Agreement’s execution (Feb. 28th), plaintiff’s defamation claim is barred by the release.  Notwithstanding the release, the Court held that the majority of WSP’s defamation claim would be dismissed due to the failure to allege actionable statements of defamation.  Likewise, the Court dismissed Plaintiff’s claim for an accounting, because the Complaint set forth no allegations that established a fiduciary relationship between WSP and defendant Marinello.  Instead, the Court found that the Complaint merely alleged a typical employer-employee relationship.  Furthermore, the Court found that the Complaint did not contain allegations that could support a conclusion that WSP lacked adequate remedies at law.

In light of the WSP analysis, employers must carefully determine whether it is appropriate to include a broad release in an employee separation agreement while the employee remains obligated to protect the employer’s confidential info.

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