Separate Without Anxiety

03/07/07

An employee stole checks from her employer, filled them out to her benefit, then spent the afternoon trying to cash them at various banks. Tipped off by an alert teller, the police escorted her back to company headquarters.

The employee denied her attempted larceny and made vague threats to get back at the company legally for past incidents. The owners decided not to press charges, but they wanted to be rid of her for good. They had a lawyer draft a separation agreement that ensured she would not darken the company doorstep again.

Lawyers Call It a Release
A properly drafted separation agreement — or “release,” as lawyers like to call it — is a legally binding agreement in which an employee or former employee agrees to release any legal claims against an employer.

In return, the company promises some form of consideration. That, says attorney Brian McMillan, “is something of value over and above what an employee is already entitled.” It could be money, a promise not to contest an unemployment claim, or a few extra months’ health insurance, among other possibilities.

McMillan, a partner with Littler Mendelson, the largest employment law firm in the USA, highlights the importance of the consideration: “One of the most common mistakes I see is an employer not providing additional consideration for the release, thus making it invalid.”

Separation agreements also can incorporate other provisions. You may add clauses, for example, that require confidentiality or return of company property. McMillan often adds a clause that says an employee will not seek to be rehired. “Say an employee is suing you or threatening to sue you for discrimination. You get a release, but six months later the employee wants to be rehired. If you reject the application, not only could you face another discrimination charge, but a claim of retaliation as well.” (This is because a release cannot cover acts occurring after the document is signed.)

When to Use a Separation Agreement
Separation agreements are used in the following situations, among others:

• When you fire an employee who could cause trouble later, and you desire peace of mind.
• When you want to get rid of an employee but have done a poor job documenting why.
• When an employee has made (or threatened) a discrimination claim and the company chooses to settle before litigation and doesn’t want the case to come back to haunt it.
• When you discharge an employee with an employment contract.
• When the company is conducting a layoff that may hit protected groups disproportionately (those over forty, for example, or those of a certain race or ethnicity).

Two Key Elements in a Release
According to McMillan, two key elements affect the enforceability of a release:

1. It must be voluntary. “You must,” he says, “give an employee ample time to consider signing the release. And you can’t coerce an employee into signing.” Some experts recommend giving employees a brief option period to revoke the agreement after signing — something that’s mandatory for the waiver of age-related claims.

2. It must be “knowing.” It must be clear that an employee understood what he or she was doing when signing the release. “Evidence for this,” says McMillan, “is the wording of the release, its clarity, and surrounding circumstances such as the amount of consideration.” And though no particular amount of consideration is necessary, he adds that it should be enough to show the employee intended it to be quid pro quo for the waiver of legal rights.

When an Agreement Can’t Help You
McMillan says a standard release of claims normally won’t help you when it comes to:

• Workers’ comp claims
• Certain FLSA overtime and other wage claims
• Future claims (regarding events yet to occur)

In addition, the Equal Employment Opportunity Commission says a release “may not interfere with the protected right of an employee to file a charge, testify, assist, or participate in any manner in an investigation, hearing, or proceeding under” the laws it enforces.

A release still protects you, says McMillan, because an employee could file a charge with the EEOC, but he or she can’t sue in state or federal court on the discrimination claim.

Finally, your state may have a say in whether a release is enforceable. Says McMillan, “The most common mistake I see is employers not checking particular state laws that may require certain language for a release to be valid.”

How to Rest Easier at Night
McMillan offers an easy way to make sure your separation agreements do not arouse suspicion on the part of employees or their lawyers: Make it a policy that anyone receiving your standard severance payment has to sign a release. “Doing so serves two purposes,” he says. “First, it means you don’t have to provide extra consideration. Second, it prevents the situation in which you only ask employees you think might sue you to sign a release.” Such a policy, in other words, doesn’t raise the red flags that might send an employee scurrying to a lawyer. All you need to say is that signing the release is required under the company’s severance policy.

In sum, declares McMillan, “Adopting and then following a policy of presenting employees with a well-drafted and legally compliant release can prevent costly litigation.”

Contact Brian McMillan at askcounsel@littler.com.


Protect Yourself! G.Neil’s Successful termination video contains the information you need for a legal and effective termination procedure.

Other helpful end-of-employment products are:
—Separation Notice
—Checklist for Employee Separation, which helps managers and HR departments remember all the essentials elements of any separation, from firing to retiring.