An Employee’s Mental Health Condition Does Not Necessarily Prevent Their Release of Claims

The U.S. Court of Appeals for the Second Circuit rejected an employee’s argument that she lacked the mental capacity to sign the separation agreement that contained a release of claims against her employer.

In Pucilowski v. Spotify USA, Inc., the employer sought to have the plaintiff’s federal lawsuit dismissed because the separation agreement that she had previously signed contained a release of claims. The employee argued that the release was not enforceable because she had signed it shortly after returning to work from a medical leave for an on-the-job head injury, and therefore she lacked the mental capacity to enter into a knowing and voluntary release.

The Second Circuit applied a “totality of the circumstances” standard to determine whether the release was voluntary. In a past case, the Second Circuit identified a non-exhaustive list of factors that could be helpful to the determination, including: 1) the plaintiff’s education and business experience, 2) the amount of time the plaintiff had possession of or access to the agreement before signing it, 3) the role of plaintiff in deciding the terms of the agreement, 4) the clarity of the agreement, 5) whether the plaintiff was represented by or consulted with an attorney, 6) whether the consideration given in exchange for the waiver exceeds employee benefits to which the employee was already entitled by contract or law, and 7) whether an employer encourages or discourages an employee to consult an attorney and whether the employee had a fair opportunity to do so.

Here, the Second Circuit found that, given her role and performance (as alleged in the complaint), the plaintiff had the education and business experience to understand the release. She was given sufficient time to consider the agreement, to revoke it if she wished, and acknowledged that she had the opportunity to consult counsel. The language of the release was clear. The plaintiff received monies that she otherwise would not have received in exchange for her release. And finally, the plaintiff offered no evidence that she, in fact, lacked the mental capacity to enter into the release – in fact, her own doctor’s assessment noted her good prognosis and anticipated return to her “usual potential” several weeks prior to her execution of the release.

When dealing with mental health issues, employers may sometimes be concerned about whether an employee truly has the mental capacity to enter into an enforceable release of claims. This case is useful in highlighting that there should be medical evidence to support such incapacity – an employee’s conclusory assertions should not be enough to render the release unenforceable.