Using Last Chance Agreements as a Retention Tool

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One of your best sales representatives was injured last year in an accident at home. His injuries were not very severe and he returned to work after a month of leave. However, his job performance started slipping and he began calling in sick frequently. Then you noticed that he appeared disheveled and sometimes seemed confused when you tried to talk with him. You had no choice but to discipline him according to your performance and conduct policies. Despite a verbal and written warning, he continued to violate the policies. The last straw came when a customer contacted you to complain about the sales representative’s inappropriate conduct at a meeting. You notified him that he was being terminated. The next day, his wife contacted you to beg you to reconsider. She explained that after his accident, his doctor prescribed opioids and he became addicted and has been abusing them. She indicated that she was working on getting him into a drug rehabilitation facility.

Your long time, excellent employee has been terminated for multiple policy violations and now you know why. If he could once again be an excellent employee, you would really like to have him back, but you cannot risk taking him back and having him continue with his poor performance and inappropriate conduct. What options do you have now?

Here’s where a last chance agreement comes into play. A last chance agreement, also called a firm choice agreement, is an agreement between an employer and an employee facing discipline (often termination) for violating company policy. The agreement spells out what the employee must do to avoid the disciplinary action. This type of agreement gives an employee one more chance to address his problems and keep his job, and also puts the employee on notice that any deviation from the agreement will mean immediate application of the disciplinary action that was withheld. Here at the Job Accommodation Network (JAN), we often suggest last chance agreements be used for employees whose disabilities contributed to or caused performance or conduct violations, especially when an employee indicates that he or she wants to try to address the problem.
 ...one major benefit is retaining a valued employee. It follows that other benefits can include saving on hiring and training costs.
The benefits of a last chance agreement for an employee are fairly obvious, but what’s in it for employers? As the example above illustrates, one major benefit is retaining a valued employee. It follows that other benefits can include saving on hiring and training costs. Another potential benefit is creating positive company morale; other employees will likely know that you gave the employee a chance even though you did not have to do so.

Terms of a Last Chance Agreement

If you decide to consider using last chance agreements, there are a lot of ways to craft them, which can vary depending on the circumstances. You probably want to consult your legal counsel, but here are some of the typical terms you might want to include:
 
  1. Basis for the Agreement

    In the agreement, you should provide a summary of the employee’s conduct and performance violations and cite the company policies that were violated. In the scenario above, for example, the sales representative violated company policy regarding performance standards by not meeting his quota, the dress code policy by coming to work disheveled, and the conduct policy by his inappropriate conduct at a client meeting.

    You also can include a summary of the progressive discipline the employee received. In the scenario, the sales representative was given verbal and written warnings for the performance and dress code violations and a termination notice for continuing violations of the performance and dress code policies along with a violation of the company conduct policy.

    You can be even more specific about exactly what the employee did, or if you kept detailed personnel records, you can cite them.

  2. Expectations

    This section is where you spell out exactly what you expect the employee to do to keep his job. In our scenario, for example, you might require the sales representative to complete a drug rehabilitation program, provide you with periodic status reports or a medical release so you can contact the rehabilitation facility directly, and periodic drug tests upon his return to work.

    You may be aware that under the Americans with Disabilities Act (ADA), employers are advised against dictating employee medical treatment. However, a last chance agreement is an exception to this rule. Why? You get more leeway because you are offering to withhold termination or other discipline when you do not have to do so.

  3. Time Frames for Meeting Expectations

    You might want to give general time frames for the employee to comply with each of the terms of the agreement to make sure the employee progresses toward a return to work and productivity. For example, in our scenario you might require the sales representative to enter rehabilitation as soon as the facility can admit him, provide status reports halfway through and upon completion of the rehabilitation program, and submit to monthly drug testing for the first six months after his return to work.

  4. Consequences of Violating the Agreement

    In this section, you spell out what will happen if the employee fails to comply with all the terms of the agreement without a valid reason for doing so. In our scenario the consequences would be immediate termination unless the sales representative has a valid reason for non-compliance. For example, if he asks the rehabilitation facility to send a status report halfway through his treatment, but the facility sends it two weeks late, you probably would not want to terminate the sales representative for the late report because it was not his fault it was late.

  5. Date the Agreement Expires

    Assuming the employee complies with the last chance agreement, returns to work, and fully complies with company policies for a period of time, at some point you should release the employee from the terms of the agreement and treat him as you would any other employee. In our scenario, for example, you might end the agreement after the employee’s drug tests show that he has been drug free for six months.

  6. Signatures

    After the employee reads and agrees to the terms of the last chance agreement, the employee and the employer should sign and date the agreement.
Other Issues to Consider

In addition to the terms of the agreement, there are other issues to consider when using last chance agreements. The first issue is how to decide which employees will be offered agreements and which will not. You can use them anytime an employee is facing termination if you choose, but if you decide to be selective, you need to make sure your selection process is not discriminatory. For example, you want to make sure you do not just give last chance agreements to men, people of a certain race or religion, or people with certain types of disabilities (such as physical impairments but not mental impairments). Appropriate selection criteria might include: job performance, seniority, or business needs at the time of the agreement.

Another issue to consider is providing accommodations under the ADA once an employee returns to work. In our scenario, the sales representative may not initially be covered by the ADA if he was illegally using drugs, but once he completes rehabilitation and returns to work, at some point he can be covered. Once he’s covered by the ADA, if he needs accommodations to perform his job, you must consider providing them. For example, employees with drug addiction may need flexibility in their schedules to continue going to treatment, job restructuring to avoid or reduce exposure to stress, or reassignment to a less demanding job.

The other issue that employers sometimes face when using last chance agreements is whether to include a waiver of rights. A waiver of rights is basically an agreement that if the employer withholds an otherwise warranted termination, the employee agrees not to file a discrimination complaint. Waivers of employee rights are typically frowned upon by the Equal Employment Opportunity Commission (EEOC) and therefore must be carefully crafted if included in a last chance agreement. It might be better to just leave them out, but if you opt to include them, you should check with your legal counsel.

Done correctly, last chance agreements can be a great tool to help with an employer’s efforts to retain employees who have temporary problems while protecting the company at the same time.

Resources for More Information

Reasonable Accommodation and Undue Hardship under the ADA at http://www.eeoc.gov/policy/docs/accommodation.html, see footnote 103

The ADA: Applying Performance and Conduct Standards to Employees with Disabilities at http://www.eeoc.gov/facts/performance-conduct.html, see question 29

EEOC Wins Rare Summary Judgment Verdict in Title VII Retaliation Case at https://www.eeoc.gov/eeoc/newsroom/release/5-29-12.cfm (case related to the use of waivers in a last chance agreement)

Working for Recovery: How the Americans with Disabilities Act and State Human Rights Laws Can Facilitate Successful Rehabilitation for Alcoholics and Drug Addicts at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3166746 (article promoting the use of last chance agreements as part of the accommodation process)