How should employment releases be prepared?
An employment release is a document that:
is prepared by an authorized company representative and presented to an employee
waives some or all of an employee's rights in return for something of value (usually cash or benefits) given to the employee by the employer, and
once signed by both employer and employee, becomes a contract between the two parties
What are the basic requirements of an employment release? Releases that waive an employee's rights must:
Be in writing
Be signed by the person waiving the right to sue
Be signed by the person waiving the right to sue
Be a knowing and voluntary waiver
Be supported by giving the employee something of value (this is known as consideration) that the employee would not receive if the release were not signed
What are the business advantages of employment releases? Although employment releases have many uses, they are most often used in lieu of documentation that may lead to discharge or layoff. Gaining frequency is the use of releases as a part of enhanced early retirement packages. In general, the reason companies use releases is to provide some level of protection from potential lawsuits.
Listed below are some of the many business advantages of using employment releases:
Releases can protect employers from claims arising out of forced terminations. Releases offer protection to the employer and also provide something of value to the employee.
In situations where there has not been sufficient documentation concerning an employee's poor performance and the employer wants to act quickly to terminate the employee, releases offer some insurance
for the employer against a future lawsuit arising out of the termination.
When an employer offers a termination package
that is opened up to a large group, such as an early retirement offer, it is common to include a release to provide the employer some protection.
How can the risk of using employment releases be assessed? The decision to present a release for an employee and employer to execute is not a simple one. There are arguments for and against the use of these types of documents. Each situation should be carefully reviewed.
The following list outlines some of the issues to consider when assessing the business risks of whether or not to use employment releases.
Fraud charges are starting to be used more frequently to challenge releases that would otherwise be valid. For example, an employee might allege a release was signed only because the employer said the employee's job was going to be eliminated. If facts indicate a year later that the job was not actually eliminated, the employee can argue that the employer fraudulently induced the employee to sign the release. Thus, employers should be absolutely truthful when communicating the circumstances of an employment separation involving a release. If circumstances change and the job is re-established, consider contacting the former employee prior to any recruiting activity.
Former employees have claimed that not being represented by an attorney underscored their lack of understanding of what rights they waived. It is not uncommon for releases to include language that encourages an employee to discuss its contents with his or her attorney before signing.
No release can be assumed to be absolute-there are rights an employee cannot waive; however, some experts advise that it is better protection to secure the release than not to. There may issues which may or may not be known to the employer at the time of the termination that cannot be litigated after the fact because a release was negotiated.
There is a counter argument that states that since a release is not absolute and the use of a release is expensive, an employer assumes greater cost without assurance that the cost was justified. Moreover, the use of a release may signal that the employer knows
some rights have been violated.
Legal issues arising out of the use of employment releases are complex. There are specific rights
that an employee cannot waive. Common law, contract and tort issues may be litigated. Employers must guard against use of releases that, over time, favor one group of employees over another.
When offered a severance package and the ability to resign (and not be fired) in return for signing an employment release, two Hispanic managers agreed to sign the release. The employment releases specified that the managers waived any claims from of their employment. The employees said they were given 24 hours to accept or reject the company's offer. The company denied that it only gave the employees 24 hours. Later, the individuals sued for race and national origin discrimination. The court allowed the defendants to go forward with their claims because 24 hours was too short a period of time for such a decision, and whether or not the timeframe was actually 24 hours should be decided by a jury as a finder of fact.
How much time must be provided for an employee to decide whether or not to sign an employment release? Given that circumstances vary in every case, there may never be a rule set that will apply in every situation. The basic point for employers is they should not force or give the appearance of having forced employees into signing an employment release. An employer should make it clear to the employee that he or she can have a reasonable amount of time to decide whether or not it is in his or her best interest to sign the release and to consult with an attorney. Employers should put these types of instructions in writing in order to document the time frame. As a general rule, it would seem reasonable that a week would be sufficient, with the exception of employees age 40 or older (see below).
Specific legal limitations and prohibitions
Employee age 40 or older. The Older Workers Benefit Protection Act requires that an employer inform employees that:
they have the right to contact an attorney to discuss the release,
they have three weeks to decide whether or not to sign the release, and
they have seven days after signing the release during which to revoke the contract if they so wish.
Cumulative impact of individual actions over time. For all employment actions, including releases, an employer must be very careful that over time and not due to any intent on the part of the employer, an action does not form a pattern that, when analyzed, may demonstrate a pattern of favoritism or bias.
Company B never had to eliminate positions until five years ago. Since that time, there have been 47 individuals who have lost their positions due to poor sales. All of the employees who lost their jobs were highly compensated managers. However, when an analysis was done, it was apparent that 43 of the 47 terminations included employees age 40 or older and that 44 of the 47 were Hispanic. The company had eliminated jobs over the five years in groups of two or three at most. At the time of each reduction in workforce, the analysis done by the company had only included financial projections. The company was totally unaware that there appeared to be a discriminatory pattern to the job reductions.
As a precaution, employers should periodically:
Group employee actions by type of separation, such as downsizings, discharges for cause, voluntary resignations, etc.
Gather demographic data such as race, sex, age for each employee affected.
Determine the percentage of each demographic group compared to the total population affected by the action.
Compare the percentage of those affected in each demographic group to the percentage of that demographic group in the total workforce.
If the company finds that one or more demographic groups have a higher representation in the category under study than that group is represented in the workforce as a whole, further analysis should be done to determine why and ensure that the pattern is not representative of any bias.
Is a written policy regarding employment releases necessary? Few employers would allow any supervisor or manager to negotiate contracts binding the employer to additional costs and increased risk. Not having control over who can negotiate employment releases is just that situation.
The use of employment releases should be prescribed for certain situations, and there should be additional approval in every instance including legal review. Under no circumstances there should be a blanket authority to negotiate employment releases. Answer the following questions:
Who can enter into an employment release representing the company?
Who approves the release before it is presented to the employee?
How does the company representative ensure the release is a proper legal instrument and that is appropriate for the company to use?
What is the role of human resources in the process?
Who analyzes the action and compares it to past actions to ensure that it is bias free?
How frequently is the overall company approach to employment releases reviewed by counsel and by senior management?
Can any of the terms and conditions outlined in the original release proposed to the employee be modified? If so, what is the process to secure legal review and approvals to modify the release?
Employment releases used in lieu of termination. Employers should have control over who can authorize the option of using an employment release to secure a resignation in lieu of terminating an employee and for what reasons. An employer will want to prevent the unrestricted use of employment releases when the situation should be handled by firing an employee. Some managers may be reluctant to fire an employee and opt for an easier
method of termination. No only should the number and management level of individuals authorized to enter into releases be limited but the circumstances under which they can be used should be limited and clearly defined.
CHECKLIST: Designing and negotiating employment releases:
What the employee gives the employee in return for their agreement to sign the release must be more than normal severance pay under an established policy.
Employers should not give an employee anything beyond normal severance benefits and pay (if any) without getting a release.
The document should be easy to read, key clauses typed in bold print and with signature spaces immediately following the text of the document.
The release should specifically refer to the employment statutes involved in the waiver of rights.
Under no circumstances should an employer unduly influence an employee to make a decision concerning whether or not to sign a release. Ensuring that the employee knew exactly what was being waived is one of your best defenses against any future claim.
Even if not required, encourage the employee to review the document with an attorney of his or her choice before signing and allow the employee a period of several days to change his or her mind after the release is signed.
Impact on pay processing. Since most releases provide additional consideration that is in the form of additional pay, it is critical that the procedures that implement the policy address pay issues such as:
Establishing the due date for the last pay and for termination of active employee status.
Identifying when severance benefits commence and regular benefits cease.
Coordinating with COBRA to ensure proper notices are given and benefits are paid for appropriately. Typically severance benefits are exhausted before former employees make a COBRA election.
Documenting payroll processing to have a clear trail of payments and proper crediting of those payments. If there are cash payments, there must be a decision as to what is the appropriate tax treatment and appropriate documentation.
Required recordkeeping and documentation. Typically payroll systems require specific documentation. Documentation should be consistent with the company's disciplinary policy if this is a disciplinary matter. If not, the reasons for the termination should be clearly spelled out. The manager recommending the release, the employee approving the release and the legal review of the release should be clearly documented.
The actual release typically has two signed originals; one for the employee and one for the company. The company's original usually is sent to general counsel for safekeeping (with all company contracts) and a clearly marked duplicate is typically kept in the company's business files including the personnel file.
Keep the matter confidential and follow all policy and procedural safeguards. As a general rule, over-docment rather than under-document.
For a sample employment release, see ¶24,215
.
<p>What are the basic requirements of an employment release? Releases that waive an employee's rights must:</p>
How should employment releases be prepared?
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