Using Severance Agreements to Avoid Lawsuits

If you fear a wrongful termination claim, consider asking a terminated employee to sign a release.

Firing workers is never pleasant. But sometimes, you know that firing a particular employee will be especially difficult and might even result in a lawsuit. Perhaps the employee stirs up a lot of trouble in the workplace, or maybe you've made some mistakes in managing the employee and have good reason for concern if a judge or jury later reviews your decisions.

Whatever the reason, if you are worried about being sued by a terminated employee, you might want to consider asking the employee to sign a release: an agreement not to sue you in exchange for receiving certain benefits. Some employers routinely ask their employees to sign a release as a condition of receiving a severance package. Other employers ask only those employees who might have a legitimate legal claim against the company, or who seem especially motivated to sue, to sign a release.

Because some states have specific requirements about what language must go into a release, you should consult an attorney for help in crafting a legal agreement that will meet your needs. Keep in mind the following general considerations:

  • You must give the employee something in exchange for the release. You are asking the employee to waive the right to sue you, and that right is worth something. This means that if you ordinarily offer a severance package to those employees who are not asked to sign a release, you will have to give something extra to employees who do sign. Specify what you will provide (typically, a sum of money) in the release.
  • Be clear about the rights the employee is waiving. You might state that the employee is waiving any right to sue you for claims arising out of the employment relationship, including the termination of that relationship. In any case, make sure the release is specific enough to forestall any later claim that the employee did not know what it covered -- and comprehensive enough to cover every claim the employee might conceivably raise.
  • Give the employee plenty of time to decide whether to sign. It is reasonable for an employee to take a week or two to decide whether to give up the right to sue you. You might even suggest that the employee consult with a lawyer to review the agreement.
  • Avoid any hint of coercion. An employee's decision to sign a release must be voluntary, or courts will not enforce the release. Don't threaten or talk tough with your employees to convince them to sign; you won't be gaining anything if your release gets thrown out of court.
  • Special rules apply to older workers. If the employee is 40 years of age or older, a federal law -- the Older Workers Benefits Protection Act (OWBPA) -- dictates what must be included in a release. Among other things, you must give these employees a longer period of time to review the release, allow them to revoke the agreement (in other words, to change their minds) for a limited time after they sign, and advise them in writing to consult with an attorney. You can find more information about the OWBPA at the website of the Equal Employment Opportunity Commission,

For more information on severance agreements, see Dealing with Problem Employees: A Legal Guide , by Amy DelPo and Lisa Guerin (Nolo).

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