When an employer presents a separation agreement to an employee, the basic equation is severance to the employee in exchange for a release to the employer. But sometimes employers put more care into structuring the severance than to making sure that what they are getting out of it, the release, is correct and complete.
Often the language of the release is taken from stock agreements or previous releases. But each release needs to be carefully reviewed and legal counsel consulted, if necessary, to make sure it is up-to-date, sufficient in scope, and legally enforceable.
Touchstones in reviewing a release include:
- Compliance with the applicable state employment discrimination laws;
- Compliance with state unemployment compensation and workers compensation laws;
- Sufficiency of the scope of the released parties;
- Use of the required consideration and rescission periods under federal employment discrimination laws; “Carve-outs” for preserved claims and indemnification rights, if any;
- Reference in the release to the laws and causes of action that actually apply to the employer’s situation;
- Clarity on the preservation of claims that may arise after the release;
- Clarity on the consequences of a rescission to released claims not subject to statutory rescission; and
- A determination of whether the release is to be mutual and, if so, how that is phrased.
This is just a beginning inventory.
Takeaway: Beware of “off-the-shelf” releases that run the risk of paying severance for an unenforceable or ineffective release. For the release to be a complete and secure “walk-away” requires careful review of each release, which likely includes review of counsel, under the always important “ounce of prevention” doctrine.