A Last Chance Agreement (“LCA”) is an agreement between the employee and the employer, usually as a last effort to avoid termination, where the employee must agree to the LCA as a condition of employment to keep their job.  An LCA is typically structured so the employee agrees that if the employee engages in one more incident during the term of the LCA, the employee will be terminated.  LCAs have traditionally been used in the union context with the union and the employee agreeing to an LCA with the employer to avoid termination and the grievance arbitration process.

A recently published Michigan Court of Appeals’ decision, Jewett v. Mesick Consolidated School District, No. 348407, 2020 WL 3005995 (Mich. Ct. App. Jun. 4, 2020), highlights why an employer should consider an LCA when it has reached a decision to terminate an employee, even in a non-union situation.  In Jewett, the plaintiff brought a disability discrimination lawsuit against the employer.  By way of background, and leading up to the lawsuit, the employer provided plaintiff with an LCA as a condition of his continued employment in an attempt to avoid terminating the employee.  The employee, however, refused to sign the LCA and instead resigned.  In the lawsuit, the employee argued he was constructively discharged, i.e., forced to quit because one of the provisions in the proposed LCA would have required him to follow “all oral and written policies”.  Under the facts of that case, the Court concluded there was simply no basis for concluding that that single line would make the employee’s working conditions intolerable, which is a requisite for a constructive discharge claim.

The Court did note, however, that if an LCA would cause material loss of benefits to the employee, such as requiring the employee to waive union grievance rights or any future determination, it might constitute an adverse employment action and therefore be discriminatory.

The Court upheld the LCA, which expressly required that the employee follow and complete all directives, fully complete his duties and responsibilities, and be prompt and regular in attendance.  The LCA also provided that the employee would be immediately terminated if he failed to meet the conditions of the LCA; that he would be closely monitored and must accept supervision; that he would be expected to report to work at his scheduled time and be prepared to work; and that he would follow all oral and written policies, procedures, directives and instructions communicated from the administration and/or the supervisor.  The Court determined that the employer had a legitimate reason for conditioning the employee’s continued employment on the LCA.

When considering termination, employers should consider whether it is more prudent to use an LCA than to terminate the employee.  The LCA can be very useful if the employer is concerned about lack of documentation in the employee’s file.  It also undercuts the employee’s ability to claim that the employee was not aware that their conduct could lead to termination, which also can assist with defending an unemployment eligibility determination.

When the underlying employee performance issue concerns the abuse of drugs or alcohol, an LCA can be combined with a treatment and drug rehabilitation requirement and/or testing provision, which is also helpful in disability cases.  An LCA can also be combined with anger management or other training in the case of behavioral or harassment issues.

An LCA, however, cannot be used to require an employee to waive the right to seek relief with the EEOC or a federal court if the employee is ultimately terminated.  An LCA, if breached, however, can provide the employer with a strong defense that it has given the employee an opportunity to keep their job and that the employee had specifically agreed to the LCA and breached it knowing the consequences.

The employer should make sure that it is on strong grounds in terminating an employee for the breach of the LCA.  In other words, it will want to make sure it has strong evidence that the LCA was violated and that the violation is a substantial violation.

In short, employers should consider an LCA in cases where they have determined that the employee’s performance has been so unsatisfactory that they have reached the point where they are prepared to terminate the employee, and yet they have concerns regarding the termination.  Those concerns could include concerns about documentation of the performance issues, concerns that the employee was not put on notice that they could be terminated, or even concerns regarding the effects of the termination on the workforce.  In a best case scenario, the employee may get the message that they are a valued employee and that the employer is trying to work with the employee to manage the employee’s performance issues to make the employee a better employee and actually become a valuable employee.

About the Author:

Tim Howlett is a Member in Dickinson Wright’s Detroit office and the Firm’s Labor and Employment Practice leader.  His practice involves counseling clients on labor and employment issues and litigation. He can be reached at 313-223-3662 or thowlett@dickinsonwright.com and you can visit his bio here.