Should You Get a Release When You Fire Someone?
by Frank L. Kollman
Employers do not like it when they discharge an employee with severance pay, and a couple months later, the employee files some type of discrimination claim. Fortunately, there is something that employers can do to minimize the likelihood and impact of lawsuits by former employees. Before agreeing to severance pay, it is appropriate to consider getting the employee to sign a release. A release is a document that says the employee waives whatever claims he may have against the employer.
[If there is no severance pay, a release signed by an employee may not be valid because the employee has received no benefit. In circumstances where no severance is paid, consult an attorney before asking an employee to sign a release.]
Exchanging severance pay for a release can be cheap insurance against future litigation. But beware, employees cannot waive some rights, no matter what they sign. For example, rights to workers compensation, minimum wage, and overtime cannot be waived. It may be illegal to even ask an employee to waive these rights. There is also a risk that asking an employee to sign a release will give him the idea that he has good reason to sue. One other thing to remember is that while a waiver may be cheap insurance, it does not prevent the Equal Employment Opportunity Commission (EEOC) from filing a lawsuit against an employer, nor does it prevent an employee from filing a charge with the EEOC or cooperating with an investigation. On average, however, the benefits of obtaining a release generally outweigh the risks.
There used to be controversy over whether an employee could waive civil rights and age discrimination claims. The Older Workers Benefit Protection Act (OWBPA), which became law in 1990, confirms that employees can waive their rights under the Age Discrimination in Employment Act (ADEA). The problem is that making the waiver effective is not a simple matter. The OWBPA says that a waiver must be "knowing and voluntary" to be effective. In fact, in some cases discussed below, the OWBPA requires employers to hand over enough information for the employee (and the employee's lawyer) to "know" whether a discrimination claim actually exists.
The OWBPA provides that the following conditions must be satisfied for a waiver to be knowing and voluntary:
1. The waiver must be part of a written agreement between the employer and the employee, and the agreement must be written so that the employee can easily understand it.
2. The waiver must specifically refer to rights and claims under the ADEA (and/or other discrimination laws), so that the employee knows exactly what rights he is waiving.
3. The waiver cannot apply to claims that arise after the date of the agreement. The employee can only waive claims arising from something that happened in the past.
4. The employee must receive consideration for the waiver. In other words, the employee must get something, severance pay for example, over and above what he is already entitled to. The waiver is not effective if the employee is forced to sign the agreement to get what he has already earned, or is already entitled to.
5. The employee must be advised to consult with an attorney before signing the agreement. To be safe, the agreement should contain a statement that the employee has been advised to consult with an attorney.
6. In most circumstances, the employee must be given at least 21 days to consider signing the agreement. However, if the agreement is part of a plan where a group of people will be leaving, such as an early retirement incentive or a reduction in force, each employee must be given at least 45 days to consider the agreement.
7. The employee must be able to change his mind for 7 days after the agreement is signed. The agreement does not become effective until the end of the 7-day period.
8. If the employer wants a group of employees to sign the agreement, the agreement must list the groups or individuals the employer wants to sign. The agreement must explain why the particular individuals or groups were selected. It should also list any applicable time limits. Finally, the agreement must list the job titles and ages of all the individuals selected, and the job titles and ages of all the individuals in the same job classifications who were not selected.
If it is just an individual employee who is leaving or is being terminated, the requirements can be satisfied without too much additional risk that the employee will think he has a claim. If it is a group situation, the OWBPA requires employers to give out a lot of potentially damaging information. The risk is that not only will the employee think he has a claim, but that will be able to take the release to a lawyer and the lawyer will be able to tell whether a claim actually exists. Because the requirements are so strict, many employers are willing to take their chances and do without releases when dealing with a group.
If an employer decides to get a release, it should contain a summary of benefits, severance payments, and similar
items the employee is being given in exchange for the release. If the employee owes money, there should be a
repayment schedule in the release. If the employee has a contract, the release should confirm his covenant not to
compete. Any outstanding claims or charges against the employer should be specifically named in the release. The
release should also state how the employer will respond to reference requests. Finally, the release should contain
language demonstrating that the requirements of the OWBPA have been satisfied.
Kollman & Saucier, P.A., The Business Law Building, 1823 York Road, Timonium, MD 21093 Phone: 410-727-4300
Fax: 410-727-4391 © 2008 Kollman & Saucier, P.A. All rights reserved.
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