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Drafting Mistake In Severance Agreement May Result In Windfall For Employee


If you are like many employers, you might offer terminated employees severance agreements under which they receive a certain amount of additional pay or benefits in exchange for releasing any potential claims they may have against the company.

A Massachusetts case, however, illustrates just how critical it is to have an employment lawyer closely review any agreement before you offer it to a fired worker.

The reason? If the agreement contains any mistakes, you may be the one paying for them.

In the Massachusetts case, Dahua Technologies, a China-based provider of surveillance products, terminated Feng Zhang, its president of North American sales, in August 2017, relegating him to the role of consultant.

At that time, the company promised to make monthly severance payments in the amount of “$680,000 for sixteen (16) months.”

Several months later, Dahua terminated Zhang’s consulting agreement and offered him a lump sum of $910,000.

Zhang rebuffed the offer and demanded the nearly $11 million he was owed according to the express language in the severance agreement.

The company sued to reform the contract, claiming Zhang was supposed to receive a total of $680,000 in severance money, and that an employee made a clerical error by typing “680,000” in a space left blank for the amount of monthly payments.

A U.S. District Court judge agreed with Dahua that there was a mistake.

But the 1st U.S. Circuit Court of Appeals sent the case back to the lower court, where a different judge ruled that Dahua bore the risk of the mistake and thus the agreement could not be reformed — at least not until Dahua could come up with solid evidence that the company and Zhang had orally agreed that he would receive only $680,000 total.

The judge may yet make a final determination that a different remedy is appropriate, but the judge may also leave the remedy as is.

And though this is an unusual set of circumstances, the best course of action is to avoid a dispute altogether through careful review of any critical employment agreements by multiple sets of eyes, ahead of time.