What is a Last-Chance Agreement?
A last-chance agreement is a written document entered into voluntarily between an employee and employer as a condition of continued employment. Last-chance agreements often precede a heightened form of discipline, like termination. Typically, they come at the end of a progressive discipline process. If an employee is facing termination, the employer may instead offer the employee a chance to retain his or her job, albeit under certain conditions. Those conditions will be laid out in the last-chance agreement.
The purpose of a last-chance agreement is to hold an employee accountable for serious performance issues while allowing the employee to keep his or her job. It does not have to arise from disciplinary issues alone. It can also be offered when an employer has concerns about an employee’s future performance , but wants to give the employee the chance to improve.
Although the use of last-chance agreements in the workplace is not a necessary step of progressive discipline, it holds certain advantages for employers. For example, if the issue in question relates to alcohol or drug use, the last-chance agreement can require that the employee undergo treatment and remain sober during the term of the agreement. This way, an employee who might have been terminated for substance abuse will instead be rehabilitated and allowed to retain employment. Additionally, the existence of a last-chance agreement can limit the employer’s liability for the employee’s behavior if any untoward acts take place in the future.
When Should You Use a Last-Chance Agreement?
An employer should consider using a Last-Chance Agreement in the following circumstances:
- (1) when the employee poses a significant risk in terms of potential damages (litigation, regulatory penalties, or productive capacity) that would be minimized by the employee’s agreeing to a limited final opportunity, and the employee is not bargaining from a position of strength (e.g., the employee is unhappy in his/her current situation and would like to accept anything to be out of there),
- (2) the employee has violated the company’s written rules or policies that can be cited to demonstrate the basis for the company’s legitimate business decision to terminate if the employee does not accept a last opportunity, and
- (3) or the employee presents behavioral or job performance problems which would otherwise justify termination but are not clearly expressed in writing in the company’s written policy or rules.
Core Elements of a Last-Chance Agreement
Last-chance agreements are unilateral promises that an employer will not discharge an employee for the violation of policy unless the employee commits another policy violation during a certain timeframe. (In other words, the employee gets a second (or maybe even third or fourth) chance.) While states differ on its enforceability, these agreements are often enforced when they are mandatory prerequisites to an after-acquired-evidence defense or, if entered into in settlement of a contested arbitration or conflict, as part of a final order memorializing that settlement. A last-chance agreement is a tool employers can utilize to balance enforcement of policies without terminating an employee who has been a good performer but just failed to follow certain rules or
A last chance agreement should include:
Duration: Specify how long the agreement will remain in effect, whether it is tied to a specific violation, and/or whether the terms require regular review and/or renewal by the parties.
Unilateral: Specify that the agreement is only binding on the company and does not create any vested or legal rights amongst the employees.
Enforcement: Specify what happens if either party violates the agreement. For instance, it may be made clear that by signing the agreement, the employee agrees that his or her prior infractions will not be considered in any grievance procedure, arbitration or other forum.
Overall Expectations: Last-chance agreements generally state that the employee agrees to fully review the employer’s policies and procedures and to follow all instructions and apply their common sense when making work-related decisions. The employee also agrees to comply with the employer’s established performance and length of service expectations. The employee may be asked to acknowledge in the last chance agreement that he has no legal claims against the employer at that point in time.
Mutual Promises. In return for the deal granted to the employee, the employer may seek reciprocal commitments from the employee. For instance, the employee may agree to forgo all administrative and judicial remedies that might otherwise be raised.
Benefits of Last-Chance Agreements
For employers, the main benefit of a last-chance agreement is to reduce the legal risks of the employment decision over the employee. The benefits to the employee can range from keeping his or her job to reducing the impact of any wrongful termination claim that the employee might have against the employer.
A last-chance agreement can save the job of an otherwise valuable employee with a relatively minor issue that both the employee and the employer believe can be resolved. These agreements also help resolve disputes that threaten to turn into expensive litigation and terminating disability- or age-protected employees that could attempt to show that the employer never viewed them as disabled or of being too old to work.
Last-chance agreements, when used properly and carefully, can benefit both the employer and the employee and with proper drafting can prevent future litigation.
Downsides and Legal Implications of Last-Chance Agreements
While last-chance agreements can be beneficial for both employers and employees, they also come with potential drawbacks and legal pitfalls. As with any employment policy or procedure, employers must carefully draft and apply last-chance agreements to avoid potential liability under state and federal law.
Proper Drafting Is Key
In general, an employee’s consent to a last-chance agreement is not valid under the National Labor Relations Act (NLRA) if it restricts the employee’s right to engage in concerted action regarding the workplace. Therefore, a last-chance agreement should clearly state that the employee is not waiving any rights under the NLRA by entering the agreement. Additionally, a last-chance agreement should not contain a release of any claims, or a non-disclosure or confidentiality agreement that restricts the employee’s ability to report work-related problems to the government or to other employees, as this can also violate the NLRA. Further, last-chance agreements should not state that the employee cannot discuss the terms of the agreement with others or with their attorney, as nondisclosure provisions are likely to violate California Labor Code Section 432.2(a), which states that an employer cannot prohibit an employee from disclosing information about the employer’s workplace conditions. To reduce the likelihood of liability , employers should work with an experienced employment lawyer to ensure that last-chance agreements are properly drafted compliant with federal, state, and local laws and regulations.
Equal Opportunity Enforcement
Employers should also be mindful of how they apply last-chance agreements. If last-chance agreements are not applied consistently, they may be grounds for a discrimination claim. In fact, in several cases, courts have found that last-chance agreements were invalid or unenforceable because they prevented employees from contesting disciplinary charges, which had the effect of removing the employee’s ability to request a reduction or elimination of the suspension or termination for protected reasons such as family care leave. For example, in Trujillo v. North County Transit District, the U.S. Court of Appeals for the Ninth Circuit held that a last-chance agreement prevented an employee from contesting disciplinary actions that resulted in his termination, and therefore it was in violation of California Family Rights Act (CFRA). Because the last-chance agreement interfered with the employee’s protected rights under the CFRA, the Ninth Circuit held that he could not be terminated pursuant to the last-chance agreement, as this would have the effect of denying him his right to obtain treatment for his serious medical condition of extreme depression and anxiety.
Examples of Last-Chance Agreements
Last-chance agreements have been utilized across numerous industries and employment contexts. In the United States, these agreements are often employed in the transportation industry and in labor-management relations. Their application is widespread as they have been used in many employment contexts with both union and non-union workers. Practically speaking, these agreements are utilized in a variety of circumstances from an employment law perspective. While primarily centered on conditions of employment, as noted below, these agreements can sometimes be as straightforward as sign and return. In the transportation industry, a rail company routinely requires drug and alcohol testing and rehabilitation when an employee tests positive. When an employee is treated for addiction and returns to work, the employee is required to sign a last-chance agreement. At that point, the employee is warned that any further infraction, whether it be a positive test, insubordination, or improper workplace conduct, may lead to termination. The contract is essentially a non-negotiable ultimatum. Whether signed or not, subsequent misconduct can lead to termination of the employment. A movie production company required all employees who had previously been out of work due to a drug or alcohol related issue to sign a disclaimer before returning to work. In effect, the agreement stated that the employee would not demand a cause for dismissal and thus returned to work at the mercy of the employer. Five former employees challenged the requirement as constituting a violation of British Columbia labor and employment statutes, however, their application was unsuccessful. The court held that the agreement was a one-time request for assurance of sobriety, not a waiver of rights. Past adherence to rules has been addressed through last-chance agreements. A financial institution required a trader to sign an agreement acknowledging the fact he had been counselled on three occasions previously. Subsequent misconduct allowed the employer to terminate employment. The American trader in this situation had engaged in two instances of misconduct in the past including failure to notify his superiors of risky behavior in connection with large trades that were later discovered. While the incident was not as severe as the conduct that ultimately led to his termination, the trader was notified of his inability to continue in his position if any such incidents occurred again. Subsequently, the trader hid large losses from his superiors. The court determined that the trader was aware of his apparent dismissal even prior to his transgressions.
Considerations for Drafting a Last-Chance Agreement
An effective last-chance agreement should be the result of careful drafting. How an employer drafts the agreement can have a huge impact on its enforceability. Below are a series of practical suggestions for drafting effective last-chance agreements that I have found helpful in practice.
Employee Status – Indicate clearly whether the employee serves at the pleasure of the employer or has any property right with respect to continued employment. Unions and personnel policies can be misleading on these points. Even if the union contract provides for just cause for termination, the last-chance agreement can go further and state that the employee has no property right in continued employment, except as limited by the last-chance agreement itself.
Future Conduct – Clearly and unambiguously specify the employee’s future conduct standards. The provision can be preceded by a statement that the employee understands that the standards are different from before and that he/she agrees to meet these new standards or face summary discharge.
No Guarantees – Avoid language that implies or even suggests that the last-chance agreement provides the employee a guarantee of continued employment. Union contracts are almost always misleading in this regard. A last-chance agreement is not a true guarantee. The agreement should explicitly reserve the right to discharge for any reason as long as the discharge is unrelated to the stated reasons in the agreement.
Specificity – The more specific about the employee’s conduct expectations , the better. For example, make sure that the agreement identifies the prohibited conduct (including approximate dates if possible) so that the agreement cannot be construed as a second chance agreement.
Investigation Not Required – Including a provision that no investigation is required to establish a violation of the last-chance agreement can avoid the argument that the employer either must reinvestigate the alleged violations or else bargaining over discipline continues. In my experience, most employees will question the employer’s judgment with respect to what constitutes a breach, unless there is a personal admission.
New Employment – Unless legally required, do not require the employee to apply for reinstatement. If the goal is to recruit a former employee, make it clear that there is no guarantee of reinstatement upon application.
Legal Consultation – Employers should always consult with an attorney experienced in labor and employment law before drafting a last-chance agreement. With respect to unionized workplaces, last-chance agreements present important contract interpretation issues that an experienced attorney can help navigate.