Employers will often offer severance in exchange for
a release agreement from a departing employee. Companies want the
assurance they will not be sued by terminated employees.
Most of the time, this is perfectly legal. It’s a
reasonable trade: The employees get some money to help them with the
transition, and the company gets an assurance that it won’t face a
lawsuit.
But in some cases, a release violates the law.
Companies offering releases need to make sure they’re legally valid,
because they could otherwise pay severance and get sued anyway. And
employees offered a release also need to understand their legal
rights before they consider signing.
One issue, for instance, is whether a release can
say the employee not only can’t sue, but also can’t file a
discrimination charge with the Equal Employment Opportunity
Commission asking the EEOC to sue on his or her behalf.
Some courts have held that such a provision is
illegal. That means if an employee signs such a release, he or she
can go ahead and file an EEOC charge anyway.
Recently, a fired employee at a Cleveland rehab
center claimed that asking her to sign such a release amounted to
“retaliation.” She not only filed an EEOC charge, she also sued her
employer claiming it’s illegal to retaliate against an employee for
exercising a legally protected right.
But a federal appeals court sided with the employer.
It said the part of the release prohibiting EEOC charges might be
unenforceable, but it wasn’t retaliation, since it didn’t really
harm the employee in any way.
But a recent Maryland case came out differently. An
employee refused to sign a release and filed an EEOC charge. The
company again asked her to sign the release, receive a severance
package and drop the charge. She sued for retaliation.
A federal judge ruled for woman, saying she could
sue the company for retaliation. It said the company had harmed the
employee by treating her worse than other workers as a result of
having filed a charge. |
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The company argued it wasn’t harming the employee
because she didn’t have a right to any severance – it was merely
making her an offer. But the court said even though the employee
didn’t have a general right to severance pay, the company didn’t
have a right to pay severance only to those employees who didn’t
file charges with the EEOC.
Age discrimination
Another issue involves when a company has layoffs.
It often asks the terminated employees to sign releases. One big
concern is if a company targets certain workers in the layoff
because of their age.
Under a federal law, a company can ask laid off
workers to sign releases of age discrimination claims – but only if
it first gives them certain types of information, such as the job
titles and ages of the employees who were laid off and the ones who
were not.
The idea is to help employees discover whether they
have a potential age discrimination claim before they sign away
their rights.
Even if a termination is not part of a layoff, there
are special requirements for many waivers of age discrimination
claims. For instance, a release might have to specifically refer to
the federal age discrimination law. Employees might have to be given
a certain period of time in which to consider signing, as well as an
additional period of time in which they can change their minds.
In general, a release is a contract, and the laws of
contracts apply. A court is unlikely to enforce a release if it
wasn’t made clear to the employee what he or she was signing, or if
the employee was told he or she had to sign immediately and didn’t
have time to adequately consider the offer.
As always, we’d be happy to discuss how the law
affects your specific situation.
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