The Art of Employment Releases

July 17, 2007

Obtaining a release from an employee that waives the myriad of federal and state employment law claims is an art and not a science. It requires balancing contradictory government regulations, harmonizing competing employee relations goals, and cajoling, a more than likely, disgruntled employee.

When a business pays money to a departing employee, it wants the matter over. However, the patchwork of government regulations and varying court decisions interpreting them make it difficult to obtain that degree of certainty. Sometimes employees challenge the validity of a release and try to pursue their claims. In some cases, regulations even allow an employee to keep the money while suing the employer.

The legal standard for obtaining a valid release generally involves assessing whether the employee’s waiver of claims was "knowing and voluntary". In the case of claims under the Age Discrimination in Employment Act (ADEA), the U.S. Department of Labor used 9 pages of regulations to define when a waiver is knowing and voluntary. In other cases, Pennsylvania courts assess the knowing and voluntary release of discrimination claims based on the following factors:

  • The clarity and specificity of the release language
  • The employee’s educational and business experience
  • The time given the employee to deliberate before signing the release
  • Whether the employee knew or should have known what rights he or she was giving up
  • Whether the employee was encouraged to seek or sought legal counsel
  • Whether there was an opportunity to negotiate over the terms
  • Whether the employee was given consideration exceeding the benefits he was already entitled to receive.

It is a real challenge to draft a "simple" release and cover all of the bases that government regulations require. Here is an area where forms can be very dangerous. As observed by Frank Steinberg of the New Jersey Employment Law Blog, getting it part wrong can result in the whole release being declared void.

To make matters more difficult, some types of claims may or may not be waived by an employee depending on the statute that created the rights. FLSA, unemployment and workers’ compensation claims may not be waived unless supervised by an agency or a court. As noted on Carl C. Bosland’s The FMLA Blog, FMLA claims in Pennsylvania may be waived and/or settle claims for past violations. However, other courts have ruled that FMLA claims cannot be waived unless supervised by a court or the DOL.

The employee relations goals revolve around perception. What is an employer communicating to a former employee when it offers him or her money not to sue the business over the employee’s termination? What is the perception created in the minds of other employees?    How can the company keep the lid on the publicity? These and other HR issues are discussed by fellow blogger Charles A. Krugel in response to my comment.

Even if a release includes a confidentiality clause, the information always seems to find its way to the employee grapevine and creates an expectation for future departing employees. The remaining workforce can be left with the impression that termination was unjust or that the employer is an easy mark for payout. Sometimes the terminated employee is surprised by being offered severance in return for signing a release. Some of these employees get the impression that the employer has something to hide and that’s why the agreement is being offered. Their natural inclination may be to hold out for more. On the other hand, some employment claims must never see a courtroom for reasons of cost, publicity and precedent.

The cajoling is really a matter of effective and honest communication. Misrepresentations about the release can also be used to invalidate it. Employers should carefully plan how the release will be presented to the departing employee and explain the rationale for requesting it. Don’t have the financial part of the package be insulting. Remember that the non-economic terms may be just as important to an employee. Things like references, communication to the workforce, nondisparagement, and outplacement are worthy of inclusion in a separation agreement. Effective communication also reduces the likelihood that an employee will challenge the validity of a release.