When an employer makes the decision to terminate an employee, the employer may require the employee to sign a settlement or release agreement as a condition of receiving a severance package or in an effort to resolve any legal claims the employee may have against the employer. These agreements are also known as waivers or severance agreements.
A release is a written agreement, signed by both the employer and the employee, in which the employee gives up the right to sue the employer for certain claims arising out of the employment relationship. In exchange to giving up this right, the employee receives something of value -- typically, a severance package. To be valid, a release must meet these requirements:
Beyond these basic requirements, some states have more rules, such as requiring the release to use certain language or appear in a certain size font.
If you are firing an employee who is at least 40 years old, the Age Discrimination in Employment Act (ADEA) requires you to include additional terms in a release. Among other things, a release of age discrimination claims must:
One of the biggest mistakes an employer can make is refusing to pay the employee severance to which the employee is otherwise entitled if the employee refuses to sign the agreement. If the employer typically pays severance to employees who are not asked to sign a release agreement, the employer may not withhold severance from an employee who refuses to sign such an agreement.
Another mistake employers make is pressuring an employee into signing the agreement immediately. An employee who feels as though he or she was pressured into signing a release may have a claim for duress or coercion. To avoid such a claim, it’s best to give an employee plenty of time to decide whether to sign the agreement and to encourage the employee to have the agreement reviewed by his or her attorney before signing it.
Finally, some employers use release agreements that don't comply with state law. Some states have passed laws that require releases to include certain language, to be in a particularly prominent style or font, and so on. The purpose of these requirements is to make certain employees know exactly which rights they are giving up. Even if the release is well-written in plain English, a state court won't uphold it if it doesn't meet the state's requirements. You should always have a lawyer review your release agreement to make sure it complies with all applicable laws.