If you are fired or laid off, your employer may ask you to sign a release: a contract in which you agree to waive (give up) your right to sue the company in exchange for some benefit, typically severance pay.
Before you give up your legal rights, you should make sure you understand the release, and carefully consider whether you are being offered enough money to give up any legal claims (e.g., a wrongful termination lawsuit) you may have against the company.
Read on to learn more about what to consider if you're asked to sign a release when you lose your job.
A release is an agreement not to sue; it waives your right to sue and company and "releases" your employer from legal liability for claims you may have against it. A release may be as broad or as narrow as the parties agree to make it. For example, in a narrow release you might waive your right to sue the company only for certain events or issues, such as legal claims relating to your layoff or to the payment of commissions that are in dispute.
Or, in a broad release, you might waive your right to sue over any and all claims arising out of your employment. (Employers typically want the release to be as broad as possible, to protect themselves from any possible legal exposure.)
Legally speaking, a release can cover only events that have already happened when the release is signed. For instance, if you sign a release on the day you are laid off, then your former employer defames you by maliciously providing false and harmful information when prospective employers call for a reference, the release wouldn't prevent you from bringing a defamation lawsuit.
Because the events underlying the suit occurred after you signed the release, the terms of the release don't cover those claims, and you can still sue over them. (Before you file a lawsuit, read Nolo's article When Should You Sue?)
A release may cover legal claims you didn't know about when you signed, as long as the events underlying the claims already occurred. For example, let's say you worked as an assistant manager at a fast food restaurant. You routinely worked 50 or more hours a week and never received overtime, because you were classified as a salaried manager.
After you are laid off and sign a release, a former coworker brings a class-action lawsuit against the restaurant, claiming that all of its assistant managers were really hourly workers and should have been paid overtime for their extra hours. Your release may prohibit you from participating in the lawsuit, even if you didn't realize when you signed it that you might have a legal claim to overtime.
A release that waives your right to sue over unknown claims like these often has to include specific language to that effect, as required by state law. If the release doesn't explicitly give up your right to sue over claims you don't know about when you sign it, a court might set aside the release and allow you to bring a lawsuit for these claims.
If your employer asks you to sign a release, you might feel a lot of pressure to sign right away -- especially if you have to sign in order to get your severance pay. But before you put your name on the dotted line, ask yourself these questions:
For more information on what to expect when you lose your job—and all other key legal issues related to employee rights—get Your Rights in the Workplace, by Barbara Repa (Nolo). You can also visit Nolo's Lawyer Directory to find and speak with an employment law attorney in your area.