D. E. Shaw withholds up to a year’s worth of its employees’ compensation and then requires them to grant the company (or be willing to grant upon demand) a broad release of liability to receive that compensation. It’s a kind of extortion. D. E. Shaw employees must give up their rights to sue for discrimination, harassment, retaliation, and even intentional torts, or else forfeit their pay for labor and services they have already performed.

The scheme effectively immunizes the employer against liability by either coercing a release from the injured employee or using the confiscated compensation to offset any legal costs and liability. These clauses effectively—and by design—prevent D. E. Shaw employees from exercising their statutory rights to file claims against the firm. Logically, the only reason why D. E. Shaw would embed a release-for-pay scheme in its employment agreements is to gain leverage over employees and get away with harming and engaging in misconduct towards them.

D. E. Shaw claims that its release-for-pay scheme is common practice in the finance industry. If true, that would mean that potentially tens of thousands more employees in New York are similarly impeded from filing file claims for any form of workplace misconduct. It is worth noting, however, that D. E. Shaw’s peer firms like Citadel, Two Sigma, and Jane Street do not share the practice. 

No. It is not uncommon to ask employees to sign releases in exchange for severance or settlement payments. D. E. Shaw’s scheme is different, however, in that it works by holding hostage payments for services already performed that the employee is otherwise owed.

In 2023, the SEC charged D. E. Shaw with violating federal securities laws by systematically impeding potential whistleblowers from sharing information with regulators, including by requiring departing employees to sign releases affirming that they had not done so to receive deferred compensation payments.

The release that D. E. Shaw demanded Michalow sign contained that same illegal requirement, as well as the requirement that he waive his other statutory rights and protections.

D. E. Shaw has narrowly fixed its release-for-pay scheme with respect to the issues under the SEC’s remit but refuses to fix it more broadly with respect to all other employee rights and protections.

First, an employer may not contractually condition an employee’s employment on a requirement that the employee release it from liability for injuries inflicted during the course of the employment relationship.

Second, a contract is unenforceable on public policy grounds when it insulates a party from liability for intentional wrongdoing.

The release-for-pay scheme is designed to accomplish indirectly what public policy directly prohibits, and the courts have uniformly rejected similar gambits. Simply put, companies in New York are not allowed to withhold pay to coerce employees into giving up their rights and allowing employers to get away with misconduct.

Yes. Coercing employees into staying silent by withholding their pay is embedded into the firm’s standard employment contracts, and David Shaw and the firm's executive committee have repeatedly refused to change that.  Relatedly, D. E. Shaw does not include mutual non-disparagement clauses in its standard employment contracts or departure agreements. This gives the firm leeway to disparage employees in future employment references or even in the media. And at least one other employee has publicly called defamation D. E. Shaw’s “playbook when a talented former employee leaves and chooses to compete.”

Yes. D. E. Shaw’s General Release and Agreement explicitly requires such employees to waive their rights under “the Age Discrimination in Employment Act of 1967, which prohibits age discrimination in employment; Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment based on race, color, national origin, religion, sex, or pregnancy; the Equal Pay Act, which prohibits paying men and women unequal pay for equal work; the Americans with Disabilities Act of 1991, which prohibits discrimination in employment against qualified persons with a disability; … and any other federal, state, or local anti-discrimination, anti-retaliation, or wage laws…”

The executives most responsible were David Shaw, Max Stone, and Eddie Fishman.

David Shaw, D. E. Shaw’s founder and controlling owner, remains in charge of strategic decisions at the company, especially those related to reputation or litigation. Shaw was at least aware of the firm’s plan to defame Michalow because Michalow emailed him asking him to intervene. Max Stone and Eddie Fishman, executives who report to Shaw, oversaw Michalow’s departure and were respondents in the litigation.

Michalow has asked David Shaw and his executives to take corrective action with respect to the release-for-pay scheme, but they have failed to do so.