How to Use a Release of Claims in the Workplace

Explaining a Release of Claims

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The release of claims is an agreement between an employer and an employee whose employment has been terminated. The release of claims legal document generally lays out the prior terms of employment and an agreement to negate them. Any other agreements released are also included in the document.

The release of claims is offered in return for the acceptance of a severance package. The document intends to limit potential litigation for reasons such as discrimination.

A second reason to offer a release of claims is to limit a former employee's ability to talk disparagingly about the company. With a properly written non-disparagement clause, if the former employee badmouths the company, he or she loses the severance. Make the severance offer reasonable and the company is protected against both litigation and public disparagement.

The release of claims is an integral component used during an employment termination meeting. It is one of the steps you will follow as you complete the employment ending checklist during a termination meeting.

Employees under the age of 40 sign a different document than the document that is requested from employees over age 40. For former employees over the age of 40, the release of claims includes an age discrimination clause in which the employee agrees not to charge the employer with age discrimination.

Legal Considerations for a Release of Claims

Additionally, the employer must inform the employee that he or she has a certain number of days (21 in Michigan) to decide whether to accept the severance and sign the release. Following the signing of the release, the employee has seven additional days to think about the decision and stick with it or withdraw it. Make certain that you are familiar with the laws that govern a release of claims in your jurisdiction.

Employers generally suggest that the employee should seek legal counsel to understand his or her available options. An attorney can review the legal implications of the release of claims agreement before the employee signing the document.

Terms and conditions of the release of claims differ from state to state and country to country, and you need to seek the counsel of an attorney in your state or nation to ensure your legal compliance. The information highlighted in this article uses Michigan release of claim ground rules.

The release of claims is presented at the employment termination meeting along with the severance offer. A fired employee is generally emotional and often willing to sign anything at this meeting. It is recommended that you never accept the signed document at the termination meeting. Advise the employee to use the time he or she has legally to review the agreement and seek legal counsel.

You will also want to ensure that your handling of the termination is legal, ethical, and empathetic.

You should also reassure the employee that your offer will not change if the employee takes the maximum time allowed by law to seek help from an attorney, review the document, and decide whether signing it and accepting the severance package is in his or her best interests.

(You, meanwhile, will be waiting anxiously to receive the signed document and through the seven additional days that the employee has to change their mind. Then you will be able to rest your mind over any potential legal ramifications from the employment termination.)

Employers can obtain a standard release of claims for employees under age 40 and for employees over age 40 from their employment law attorney. Any practicing employment law firm can provide a standard release and make any modifications necessary for your company for a small fee.

Have the attorney review the release of claims at the same time as he or she reviews the rest of the employment termination paperwork. Even if you have used the release of claims document in prior terminations, it is important to make sure that the circumstances are the same and merit the same document.

In all legal matters, have your employment law attorney review the paperwork. This review alleviates your worries and concerns, lets you sleep comfortably at night and ensures that you have adequately protected your employer's interests.

Legal Challenges to the Release of Claims

The release of claims has traditionally been used as a way to limit litigation, resolve possible disputes between an employer and an employee, and to finalize the ending of the employment relationship.

It bears mentioning, however, that recent decisions in Equal Employment Opportunity Commission (EEOC) filed court cases raise the possibility that these agreements have limitations going forward.

Especially, if you have not run your release of claims by an attorney recently, you may have language in the document that is open to a legal challenge. You want to avoid this as many legal documents traditionally used by employers to limit litigation in areas such as employment termination, and non-compete agreements are currently being challenged in court.

According to Teresa M. Thompson of Fredrikson & Byron, in Minnesota, current documents may not protect an employer from a discrimination lawsuit. If this trend continues, organizations may want to re-examine their practice of offering severance to fired employees. If the release of claims is gutted of its ability to limit litigation, what's in its use and exchange for severance for the employer? Potentially nothing.

Ms. Thompson says (in an article that is no longer available online):

"So, what does this all mean? The law is unclear. The Sixth Circuit has apparently taken the position that employers may include broad releases in their severance agreements and that employees can be precluded from recovering additional monetary relief. However, the release would not affect an employee’s right to file a charge or participate in an EEOC investigation. This interpretation is consistent with the statutes and their legislative history, but provides no certainty for employers as the EEOC continues to pursue “invalid” releases. If you are still using a severance or separation agreement that contains language the EEOC may find “offensive,” please consult an employment attorney."

Do heed Ms. Thompson's advice if you use a release of claims in an employment termination situation.

Disclaimer: Please note that the information provided, while authoritative, is not guaranteed for accuracy and legality. The site is read by a worldwide audience, and employment laws and regulations vary from state to state and country to country. Please seek legal assistance, or assistance from State, Federal, or International governmental resources, to make certain your legal interpretation and decisions are correct for your location. This information is for guidance, ideas, and assistance.­ only.