Last Chance Agreement

The last chance agreement (LCA) is drafted between an employer and an employee (usually represented by a union) when the employee commits a serious violation of company policy. The purpose of such an agreement is to deter the employee from committing any such violations in the future by giving him a final warning.

Breaching the terms of an LCA could result in immediate termination from service regardless of any union stipulations that might apply under normal circumstances. There are a few critical details to keep in mind while framing this document, all of which have been detailed in this article.

Who Takes the Last Chance Agreement? – People Involved

You would need to enter into an LCA if:

1. You are an employer looking to give one final warning to an employee who has committed a serious offense or significantly underperformed.
2. You are an employee who has committed a grave violation of company policy and would like the last chance to prevent being terminated.

The contracting parties here are the employer and the employee.

Purpose of the Last Chance Agreement? – Why Do You Need It

The purpose of an LCA is to:

1. Give details about the violation that the employee has committed. It describes the violation in detail so that the employee is made aware of how he might have acted in gross contravention of company policy.
2. Give the employee one final warning against misbehavior or violation of company policy. If he commits another violation, he can be terminated immediately.
3. Make provisions for immediate termination in the case of contravention of the terms of the agreement.
4. Make the employee more mindful of the company’s policies and deter him from committing any more violations.
5. Restore strained relations between the employer and the skilled employee by showing leniency.

The document intends to give the employee one final warning and using vague language, or suggesting intermediate disciplinary action can weaken the force of the document. Doing this could cause the employee to take the agreement more lightly than otherwise and defeat the purpose of the argument.

Contents of the Last Chance Agreement – Inclusions

An effectively drafted LCA must be short and concise to avoid additional arbitration.

1. Parties to Agreement: This clause asserts that the agreement is a commitment to the conditions of employment between the employer and the employee.
2. Expiration Date: Last chance agreements must have an expiration date, post which the agreement will not be valid. This is usually one year to 18 months; however, this is not a rule and can be as long as required.
3. Acknowledgment of Violation: This clause requires the employee to acknowledge the breach of company policy, giving details about the incident.
4. Conditions: This term lists all the conditions that the employee must satisfy in order to retain employment.
5. Undertaking: This term requires the employee to read, understand, and comply with the conditions to which his employment will be subjected to usually, but not always for a limited probationary period.
6. Union Representation: This provision allows the union to represent the employee as per the stipulations of the labor laws.
7. Failure: This provision warns that failure to comply with any of the conditions listed will result in immediate termination of employment. This term should avoid describing the possibility of any intermediate disciplinary actions other than termination, as this would dilute the intent and force of the agreement.
8. Limitation of Arbitrator’s Rights: The agreement must seek to limit the arbitrator’s statutory right to alter penalties. It must express that the arbitrator shall have no right to ease the penalty of termination in any way or manner as a specific penalty has already been mutually agreed upon. Without this provision, the arbitrator will be free to decide the outcome of the agreement, which will defeat the purpose of the agreement.

How to Draft the Last Chance Agreement?

The procedure to draft the last chance agreement:

1. Mention the parties to the agreement, that is, the employer, the employee, and the union representing the employee.
2. Mention the expiration date of the agreement. This usually lasts 12 to 18 months.
3. Include a clause where the employee will acknowledge that he breached company policy and detail the incident that caused it.
4. Include an undertaking clause that will have the employee undertake that they will comply with all the terms listed in the agreement, failing which the employee will be at risk of being immediately terminated.
5. Mention the consequences of failure to comply with the terms of the agreement.
6. Include a clause that limits the arbitrator’s statutory right to amend penalties as a specific penalty had been agreed upon in accordance with the provisions of the Labor Relations Act.
7. Include space for the signatures of the employee and representatives of the employer who will act as witnesses.

Negotiation Strategy

In the case of an LCA, there is usually no negotiation involved. However, the agreement must be fair, concise, and to the point in order to avoid arbitration or lawsuits. Ensure that the agreement details the shortcomings in the performance of the employee’s duties and what they should be mindful of, to prevent termination of employment.

The employee should look out for caveats in the agreement that employers take advantage of such as vague terms that would later allow them to terminate the employee for virtually any or no reason. Employees should be wary of terms that prevent them from engaging in legally protecting activity.

Benefits & Drawbacks of the Last Chance Agreement

The benefits of having an LCA:

1. It gives a clear overview of the conditions that the employee must be mindful of.
2. Restores strained relationships between employers and employees by showing leniency.
3. It can be used as a retention tool.
4. Gives the employee a final warning that will deter him from making any more violations.

The drawbacks of having an LCA:

1. If poorly drafted, the agreement could lead to further arbitration.
2. Clauses that are vague

Other terms that can be included:

• Drug and Alcohol-Related: Often, LCAs are used in cases of misconduct stemming from drug and alcohol abuse. In such cases, the agreement must include a clause that would require the employee to consent to random testing for drug abuse in the workplace and possibly, attend a residential treatment program. The American with Disabilities Act accounts for people with substance abuse issues and provides that they cannot be discriminated against on these grounds, so it is important to be aware of these provisions while drafting the agreement.
• Privacy of Medical Records: In cases of drug and alcohol-related misconduct, the employee must assert that the employer cannot force the employee to provide any medical records that are of private nature. If the records are provided by the employee upon request, they must be kept confidential and private.
• Confidentiality: It is advisable to use a confidentiality clause to prevent the agreement from being used in relation to other cases between the company and the union that is representing the employee.

What Happens in Case of Violation?

If the terms of the agreement are breached, the employer may choose to terminate the employment regardless of any union stipulations that might prevail in normal circumstances. Other penalties may also be imposed as per the terms of the agreement. There is usually no scope for litigation, but in some cases, employees had taken employers to court over retaliation claims when the last chance agreements prevented them from performing legally protected activities.

How Long Does a Last Chance Agreement Last?

The last chance agreement can last for any reasonable amount of time. In most cases, it lasts anywhere from 12 to 18 months. During this time, the employee’s employment is subject to the conditions of the agreement, which are non-negotiable post the ratification of the agreement(1). The violation or contravention of these conditions would result in the immediate termination of the employee.

[Also Read: Separation Agreement]

The last chance agreement must be used fairly as a last resort in order to restore strained relationships with employees by giving them a final warning before terminating employment(2). Caution must be exercised while drafting such an agreement as unnecessarily lengthy agreements can lead to further arbitration. By means of such agreement, the employer retains the right to terminate employment regardless of union stipulations.

The employer must ensure that the LCA does not prevent the employee from performing legally protected activities, as this could lead to a retaliation claim. The document must be drafted carefully while paying attention to all of the aforementioned details in order for it to be effective. Overall, last chance agreements are a great method to improve relations with a skilled worker who has acted in contravention of the company policy.