Last chance agreements provide workers facing discharge with a final opportunity to remain employed. Thus, the agreements need to be used—and worded—carefully.
The agreements are common in unionized settings but also are drafted for employers without a union—for example, they often are used when an employee violates a substance use policy, admits to the violation and is willing to rehabilitate, according to Steve Loewengart, an attorney with Fisher Phillips in Columbus, Ohio.
But he cautioned, “Overuse of last chance agreements can create more complex administration efforts that outweigh the benefits of the agreements.”
Calling Out Improper Behavior
Last chance agreements typically focus on an employee’s improper behavior, such as the use of or possession of drugs or alcohol at work, insubordination, yelling or cursing, or bullying, said Debra Friedman, an attorney with Cozen O’Connor in Philadelphia.
Sometimes, the agreements are used for violations of other policies, such as safety or timekeeping protocols, she added.
“They less frequently are used to address deficiencies in an employee’s skills for the job,” Friedman said. For example, it would be less common to use last chance agreements for failure to meet deadlines or production quotas or failure to communicate clearly with colleagues and third parties about business matters.
Typical Statements in Agreements
Last chance agreements are drafted individually, but Friedman said they might include such statements as:
- “We are providing you with one last opportunity to demonstrate to us that you can meet our workplace expectations. Any failure by you to comply fully and continuously with our expectations, as set forth in this last chance agreement, will result in the termination of your employment. We sincerely hope that you take advantage of this opportunity.”
- “You must understand that the type of conduct you exhibited will not be tolerated. Accordingly, by signing this last chance agreement, you acknowledge and agree that if you fail to meet all the expectations outlined in this document at any time, the company cannot and will not continue to employ you.”
- “Nothing in this last chance agreement changes the at-will nature of your employment. Only the company’s CEO has the authority to alter the at-will employment relationship, and any such alteration must be in a writing signed by [the CEO].”
Last chance agreements should not have a time limit, such as a statement that the employee will not engage in certain behaviors for six months or a year, she said. “Rather, last chance agreements do not expire but generally extend throughout the remainder of the employment relationship.”
“Don’t give an employee multiple chances if they violate the last chance agreement, as it undermines the entire purpose of this disciplinary tool,” she added.
The agreement should, according to Steve Kerbaugh, an attorney with Saul Ewing in Minneapolis:
- Detail the conduct that led to the agreement, including referencing previous coaching or disciplinary measures related to the conduct.
- Outline what company policies or expectations the conduct violated.
- Describe the steps necessary for the employee to retain their position.
- Specify unequivocally that the consequence of not complying with the agreement is termination of employment.
“To the extent that a last chance agreement sets a performance-related metric that an employee must meet, it should be realistic,” he said. “Unattainable goals in last chance agreements may be viewed as retaliatory or as pretext for discrimination.”
In addition, Kerbaugh said that if one employee gets the opportunity to enter into a last chance agreement for engaging or failing to engage in conduct, others should, too. “This will help avoid potential discrimination allegations,” he said.
If the worker is subject to a collective bargaining agreement, the union will need to be consulted and may be a party to the last chance agreement. “In that case, the last chance agreement should be drafted with an eye toward avoiding any subsequent arbitration,” he said.
Although last chance agreements are used in circumstances that justify terminating employment, “they should be written with the intent to give the employee another chance to succeed and not simply to protect the employer from a subsequent claim in the event the employee violates the conditions set forth in the agreement,” said James La Rocca, an attorney with Hunton Andrews Kurth in New York City.
If handled correctly, a last chance agreement provides a clear message about why an employee’s behavior is unacceptable and fully describes the consequences of such behavior in the future, said Ruthie White, an attorney with Spencer Fane in Houston.
Alternatives
Written warnings are an alternative, among others, to last chance agreements. Friedman said written warnings may be more appropriate if the goal is to curb further violations of policies with the understanding that a repeat offense a year or more later generally would not result in immediate termination of employment. “Violation of attendance policies is one area where a written warning may be more appropriate than a last chance agreement,” she said.
Immediate discharge may be an alternative if the conduct at issue eradicated any further trust in the employment relationship or the conduct was otherwise so severe that it did not warrant a second chance, Friedman said. Examples include theft of company property or recklessly or intentionally disclosing the company’s confidential information to third parties.
“A performance improvement plan also may be an alternative to a last chance agreement, particularly where the goal is to address a specific set of skills or performance deficiencies and provide the employee with guidance and resources to improve their performance in a short amount of time—generally 30 to 90 days,” Friedman said.