Protecting Employers Since 1985
An Employer’s Magic Wand! Separation And Release Agreement
One of the most frequent questions that I get from our clients is “How can I fire an employee but not end up with a lawsuit against our company?“
As employers know, lawsuits against the company often cost the company significant amounts of time, energy, morale, and money. Also, they are a huge distraction. They are disruptive. So, if a company can secure a valid and enforceable release in exchange for severance (and there is no set amount of severance you must give in order to make the release valid-just something above and beyond what you are required to give per contract or company policy), then why not take this logical step?
A valid and enforceable release signed by a departing employee in exchange for extra severance, etc. will act as a magic wand and will effectively bar that employee from bringing any of the kinds of lawsuits enumerated in the release.
WHY USE A RELEASE AGREEMENT?: Clients sometimes do not know why it is important or necessary to have a departing employee sign a release at all.
Clients ask “Why should our company give this departing employee anything at all!? We (the employer) did nothing wrong! Won’t this make us look guilty or weak?!
The short and snappy answer is that, if you are willing to give a departing employee something “extra” for free out of the goodness of your heart (such as severance, enhanced benefits, etc.), why not get something in return to protect the Company?
It often makes good business sense to obtain a release from a departing employee (if you are willing to give them something extra of value).
If you don’t get a release from a departing employee (but you still give them extra severance or agree not to protest their unemployment insurance), the employee can then turn around and bring a discrimination case against your company (on the basis of race, age, sex, disability, etc.), or bring a wage claim suit or breach of contract suit against your company, etc.
SEVERANCE: The subject of severance often arises when an employer is thinking about firing an employee. Severance can be defined as payment to an employee by the employer upon separation from employment.
Sometimes employers give severance payments to a departing employee because there is a Company policy about severance. For example, a company may have a policy that departing employees are entitled to one week of severance for each year of employment. This kind of policy is getting much less common in the United States as the financial strain upon business increases. In other words, in years past when the economy was booming in the United States, it was much more common to see companies have a policy where a departing employee is actually entitled by company policy to a certain amount of severance.
In today’s world, most companies do not have policies which commit them to give departing employees a certain amount of severance. Rather, companies generally make the decision about severance on a case-by-case basis.
In Illinois, there is no legal requirement that a company give a departing employee any severance (unless of course the company has a contract with the employee obligating the company to give the employee a certain amount of severance upon separation from employment, or, as stated above, the company has a specific policy entitling departing employees to a certain amount of severance).
MUST GIVE SOMETHING OF VALUE TO EMPLOYEE TO SIGN IT: In order for a Release Agreement to be enforceable, the company must give something of value to the employee to sign it – i.e., something of value that the employee already was not entitled to per company policy or by law. Therefore, simply giving an employee earned vacation would not be adequate severance for the employee to sign a legally enforceable Release Agreement.
For severance to be adequate (in order for a Release Agreement to be enforceable by Illinois Courts), severance must be something that the employee wasn’t entitled to anyway (even if he or she didn’t sign the Release Agreement releasing all claims against the company). For example, giving a departing employee a laptop computer could be considered adequate severance, unless the employee was already contractually entitled to it.
IN ILLINOIS, SEVERANCE DOES NOT BLOCK UNEMPLOYMENT: Clients frequently ask me if the employee may still be eligible for unemployment insurance benefits upon separation from employment if the employee is also being given, for example, 20 weeks of severance. Clients are surprised to learn that in Illinois severance does not block unemployment. In other words, severance payments are considered payments by the company to the departing employee in recognition and appreciation for past services; therefore, severance payments in Illinois are not considered to be compensation for current services. That is why severance payments (no matter how generous) do not block unemployment insurance benefits in Illinois.
Clients often ask me how much severance they should give the departing employee. My standard response is to give the departing employee a generous enough severance package that hopefully the employee will sign the Separation and Release Agreement, and the company will therefore avoid the potential of a lawsuit from the employee for wrongful discharge, etc.
SPECIAL REQUIREMENTS FOR EMPLOYEES WHO ARE 40 YEARS OF AGE OR OLDER: Be aware that there are special requirements for a release agreement when the departing employee is 40 years of age or older. Under the Older Workers Benefit and Protection Act, in order to have a valid and enforceable release, the employer must advise the departing employee (in the release agreement itself) to take the release to his/her attorney for consideration. Also, the release agreement (for an employee who is 40 years of age or older) must give the employee 21-days to consider the offer and seven days after signing the release to revoke the release.
GROUP TERMINATION: When release agreements are offered to two or more departing employees (for example, as part of a reduction in force), this fact pattern creates a group termination situation under which there are further legal curve balls (requiring many special provisions) for the employer. The employer will need to use a very special kind of “group release” to make it legally enforceable under Federal law.
CONCLUSION: Giving the employee severance so that it will induce the employee to sign a Separation and Release Agreement is a common practice across the United States. It is often a win-win situation for both the company and the employee because the employee leaves with compensation that the employee would not otherwise be entitled to, and the company hopefully avoids litigation from a disgruntled departing employee, and can give anxious employers a measure of comfort and certainty.
For assistance with terminations and Separation and Release Agreements, contact Nancy Joerg at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at firstname.lastname@example.org.
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