How to Use a Release of Claims

Make Use of an Employment Separation Agreement in Employment Termination

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The release of claims is an agreement between an employer and an employee whose employment has been terminated. The release of claims document generally lays out the prior terms of employment and an agreement to negate them. Any other agreements released are also included in the document.

The release of claims is offered in return for the acceptance of a severance package. The intent of the document is to limit potential litigation for reasons such as discrimination.

A second reason to offer a release of claims is to limit a former employee's ability to talk disparagingly about the company. With a properly written non-disparagement clause, if the former employee badmouths the company, he or she loses the severance. Make the severance offer reasonable and the company is protected against both litigation and public disparagement.

Employees under the age of 40 sign a different document than is requested from employees over age 40. For former employees over the age of 40, the release of claims includes an age discrimination clause in which the employee agrees not to charge the employer with age discrimination.

Legal Considerations for a Release of Claims

Additionally, the employer must inform the employee that he or she has a certain number of days (21 in Michigan) to decide whether to accept the severance and sign the release. Following the signing of the release, the employee has seven additional days to think about the decision and stick with it or withdraw it.

Employers generally suggest that the employee seek legal counsel to understand available options and the legal implications of the agreement prior to signing the document. (Terms and conditions of the release of claims differ from state to state and country to country, and you need to seek the counsel of an attorney in your state or nation to ensure your legal compliance.)

The release of claims is presented at the employment termination meeting along with the severance offer. A fired employee is generally emotional and often willing to sign anything at this meeting. I recommend that you never accept the signed document at the termination meeting. Advise the employee to use the time he or she has legally to review the agreement and seek legal counsel.

Employers can obtain a standard release of claims for employees under age 40 and for employees over age 40 from their employment law attorney. Any practicing employment law firm can provide a standard release and make any modifications necessary for your company for a small fee.

Have the attorney review the release at the same time as he or she reviews the rest of the employment termination paperwork.

Legal Challenges to the Release of Claims

The release of claims has traditionally been used as a way to limit litigation, resolve possible disputes between an employer and an employee, and to finalize the employment relationship.

It bears mentioning, however, that recent decisions in Equal Employment Opportunity Commission (EEOC)-filed court cases raise the possibility that these agreements have limitations going forward.

Especially, if you have not run your release of claims by an attorney recently, you may have language in the document that is open to a legal challenge.

According to Teresa M. Thompson of Fredrikson & Byron, in Minnesota, current documents may not protect an employer from a discrimination lawsuit. If this trend continues, organizations may want to re-examine their practice of offering severance to fired employees. If the release of claims is gutted of its ability to limit litigation, what's in its use and exchange for severance for the employer? Potentially nothing.

Ms. Thompson says (in a no longer available article):

"So, what does this all mean? The law is unclear. The Sixth Circuit has apparently taken the position that employers may include broad releases in their severance agreements and that employees can be precluded from recovering additional monetary relief. However, the release would not affect an employee’s right to file a charge or participate in an EEOC investigation. This interpretation is consistent with the statutes and their legislative history, but provides no certainty for employers as the EEOC continues to pursue “invalid” releases. If you are still using a severance or separation agreement that contains language the EEOC may find “offensive,” please consult an employment attorney."

Disclaimer: Please note that Susan makes every effort to offer accurate, common-sense, ethical Human Resources management, employer, and workplace advice on this website, but she is not an attorney, and the content on the site is not to be construed as legal advice. The site has a world-wide audience and employment laws and regulations vary from state to state and country to country, so the site cannot be definitive on all of them for your workplace. When in doubt, always seek legal counsel. The information on the site is provided for guidance only, never as legal advice.

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