Does a release of claims help when firing an employee?

March 31, 2006

Excerpted from South Carolina Employment Law Letter, written by attorneys at McNair Law Firm, P.A.

Q: Our company is currently reviewing its termination policies. Should our company attempt to obtain a release of liability at the time it terminates an employee?

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A: As all employers are aware, firing an employee should be based on a legitimate, nondiscriminatory ground. Regardless of how careful you are during the termination process, however, it's inevitable that some employees who have been fired will file lawsuits for breach of contract, wrongful discharge, or discrimination. In an effort to prevent litigation, many employers ask departing employees to sign a document wherein they waive their rights and release the employer from any further liability.

Employers should understand that, in general, courts look on that type of release agreement with disfavor. They're reluctant to honor such an agreement unless it was entered into knowingly and voluntarily. In making a decision, a court will look at a number of factors, including the employee's education and experience, whether the employer engaged in any improper conduct, and whether the employee was given the opportunity to consult with an attorney. Employers should also be aware that certain statutory rights, such as the right to minimum wage, can't be waived.

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Of particular concern is when older employees are fired or laid off. For an employee over the age of 40, the Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act (OWBPA) establish certain requirements that must be satisfied for a release agreement to be upheld. Under the OWBPA, an employee can't waive an age discrimination claim unless the following eight requirements are met:

1. The release is in writing.
2. It's written in language that's understandable to laypersons.
3. It specifically refers to rights or claims under the ADEA.
4. It's exchanged for something of value (e.g., a lump-sum payment) in addition to whatever the employee is already entitled to.
5. The employee is advised in writing to consult with an attorney before signing it.
6. There's no release of any claim that may arise after it's signed.
7. The employee is allowed at least 21 days to consider it.
8. The employee is allowed seven days after signing to revoke it.

In addition, if a release is offered in connection with an exit incentive or another plan offered to a group or class of employees, all individuals in the group must be:

• given at least 45 days to consider the release;
• informed of the class, unit, or group of employees covered by the program, the eligibility factors for the offer, and the time limits that are applicable; and
• informed of the job title and ages of all persons eligible or selected for the program and the ages of all individuals in the same job classification or organizational unit who aren't eligible or selected.

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Thus, an employer may wish to consider adopting and implementing a release or separation agreement that, if properly prepared and drafted, could enable it to avoid the cost of litigation. Employers should, however, be aware that if they fail to comply with certain requirements, the agreement won't be enforceable, and they may have given the employee additional money that was unnecessary.

In addition, the severance agreement might notify the employee of rights and remedies he wasn't aware of, and it could set a precedent with other employees who learn of fired employees receiving additional payments in exchange for a release. Accordingly, employers should carefully consider whether they desire to obtain such releases from employees and consult with employment counsel regarding the language in the release.

Copyright © 2006 M. Lee Smith Publishers LLC. This article is an excerpt from SOUTH CAROLINA EMPLOYMENT LAW LETTER. South Carolina Employment Law Letter is not intended to provide legal advice, which can be given only after consideration of the facts of a specific situation.

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