By Jonathan K. Driggs, Attorney at Law
It is a common practice to have an employee sign a release of claims agreement in exchange for paying him or her a severance. Most of the time doing so makes a lot of sense—otherwise the employer could be funding the employee’s lawsuit against the company (um, that would definitely have to be filed under the “not good” category!) Using appropriately drafted release agreements can be a very effective way to reduce the potential for legal challenges resulting from terminating employment relationships. The following are a few points to consider when using release agreements.
There’s nothing unusual about the practice so no need to get uptight about it. Some of my clients, especially those who haven’t used release agreements before, get concerned that requiring the employee to sign a release can be viewed as an indication of guilt on behalf of the employer. However, requiring a release is a widespread practice for employers throughout the country and I find that most employees are now familiar with such documents. I often tell my clients that if questions come up to respond with something like, “it is simply standard operating procedure to require a release when we offer a severance to an employee—nothing personal should be read into it.” And of course, when all else fails, blame the attorney (as in roll your eyes, sigh and say, “our attorney requires us to do this as a standard operating procedure”). Finally, here’s the opportunity you’ve been waiting for!
How good is the form you are using? Release agreements are the employment law equivalent of borrowing a cup of sugar from your next door neighbor (ok, ok, maybe they’re not as sweet, but stay with me here). These documents are frequently shared between employers. However, this can lead to “the blind following the blind” when the employer using the borrowed agreement really has no idea how good the form is, but thinks it must be ok because some other employer used it before. The release agreements that cross my desk range from poor to excellent, so to tweak an old adage just a bit: “borrower beware!” When in doubt, have your form reviewed by competent employment law counsel.
Now is generally not a good time to take care of certain concerns that should have been addressed at the beginning of the employment relationship. Tsk, tsk, tsk, we do tend to procrastinate don’t we? Restrictions regarding non-competition, non-solicitation and non-disclosure of proprietary information should be dealt with at the start of employment, not the end. When the employer tries to address such issues in a release agreement, it can really complicate the process and ultimately expose the employer’s vulnerability. It is not unusual for an employee to walk away from such an agreement when the employer tries to slip a non-competition provision into it, or empower the employee to ask for a whole lot more moolah.
Some types of claims can’t be waived. While this point could be discussed at great length, suffice it to say that employers are limited by what types of claims can be waived. For example, while employees can waive rights to file discrimination lawsuits in federal or state courts, employees cannot waive the right to file claims with administrative agencies such as the EEOC (though they can agree to waive the right to collect damages if the agency finds in their favor). The general principle is that employees always have the right to report their concerns to government enforcement agencies. Certain types of claims can’t usually be waived, including: claims for unemployment benefits and claims under the Fair Labor Standards Act (I do, however, ask employees to confirm that they have received all compensation due to them related to the performance of their duties). Employees can also not agree to waive claims which arise in the future (so only claims predating the date of the release may be waived).
Release agreements need to be carefully drafted and presented to employees to be enforceable. The courts become fairly paternalistic about protecting employees regarding agreements which are either too difficult to understand, or the employee appears to be coerced or rushed into signing them. When I am asked to review an agreement and I struggle to understand a certain provision, that is not a good sign about enforceability! So, if you’re asking an entry-level customer service representative to sign the agreement, your average CSR should be able to understand it. Employees should also have enough time to review the agreement before signing it (by the way, I never allow an employee to sign the agreement right when it is given to him or her).
We’ll expand on some of these topics in next month’s article. Stay tuned!
This article should not be construed as legal advice. Copyright ©2014 by Jonathan K. Driggs, Attorney at Law, P.C. All rights reserved. Jonathan K. Driggs is an employment law attorney with over 21 years of experience, including 3 years with the Utah Labor Commission. www.jkdlawpc.com
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