Obtaining Releases From Terminated Employees
One unfortunate consequence of the recent economic woes is that employers are more frequently faced with the necessity of terminating employees. A question that often arises is whether to seek a release from the terminated employee. A release is a document, signed by an employee, in which the employee releases all claims against the employer and promises not to sue the employer. In order to support a release, there must be “consideration.” The release is valid only if the employee receives something MORE than that to which he/she is already entitled. In order to fulfill this requirement, the employer gives the employee some benefit (usually cash).
If you intend to provide the employee anything more than is legally required (final paycheck and accrued vacation), you should consider having the employee sign a release. If a written release is not obtained, the severance or other benefit given by you (e.g., the right to remain in the office with secretarial support for 60 days while looking for a new job) is a free gift. The employee can take that free gift and still sue you later for wrongful discharge, discrimination, etc.
The use of releases may be counterproductive where the discharge is for misconduct or serious dereliction of duty. You do not want to reward an employee who was caught with his/her “hand in the till.” In addition, you do not want to send a message to remaining employees that misconduct pays. However, when faced with such issues as reductions in force or sticky terminations when you are unsure that you handled the situation as well as you might have, the use of a release may be appropriate.
It is important to note that releases are not “one size fits all” documents. A release must be tailored to the particular employee and individual circumstances in which it will be used. For example, if the worker is 40 years old or older, you will also have to comply with the Older Workers Benefit Protection Act (OWBPA), which provides that an employee may not waive any right to claim under the Age Discrimination and Employment Act of 1967(ADEA) unless the waiver is “ knowing and voluntary.” Under the OWBPA a release is not “knowing and voluntary” unless the employee is advised in writing to seek the advice of an attorney, given a specified period (21 or 45 days depending on the type of release) to consider the offer, and seven days to rescind the agreement. If these requirements are not satisfied, the release will be invalid, and you will have paid money in exchange for an ineffective release.
Asking the employee to release certain types of claims can also have more serious consequences. For example, the Labor Code makes it a misdemeanor and authorizes a penalty for employers who seek to have employees release certain types of wage claims. For these reasons, employment law counsel should be consulted to the assist in the preparation of any release.