Using a Separation and Release Agreement as a Litigation Risk Management Tool.
In my post of 2/26/20 titled: “Are You Using Mediation as a Litigation Risk Management Tool?” I echoed Eric B. Meyer’s support for mediating employment law claims. [include link to article]
I also alluded to another risk management tool that I use: Employee Separation and Release Agreements.
What is a Separation and Release Agreement (SRA)?
An SRA, properly written to comply with federal and state laws, is one that allows an employer to prevent potential claims from turning into actual lawsuits.
The SRA must offer to pay to an employee something of value (e.g., cash or shares of company stock) to which the employee is not otherwise entitled. If the employer has a standard severance program already in place, the SRA must offer something in addition to that standard amount.
When is the best time to use an SRA?
The best time to use an SRA is before terminating a High-Risk Employee.
What is a High-Risk Employee?
In a typical case, a High-Risk Employee is one that (i) the employer wants to terminate for poor performance and (ii) the employer (after consulting with legal counsel) concludes poses a high risk of filing a wrongful dismissal lawsuit in response.
What Types of Claims May an SRA Include?
An SRA generally may include a release of such claims as employment discrimination, unpaid wages, and entitlement to company stock options.
Many states now forbid using SRAs for such things as sexual harassment claims. Consult with an employment-savvy lawyer licensed in your state.
How Does an SRA Help Manage Risk?
An SRA virtually eliminates the risk that the employer will waste management time, focus, and money defending the types of claims that are listed in the SRA. I say “virtually” because no contract can physically restrain someone from filing a frivolous suit.
Employers can use SRAs to reduce their risks of wasting resources defending employment lawsuits. It is important for employers to consult with counsel before terminating someone who the employer knows or should know is at high risk of filing suit.
Please note: the above post contains educational information. It is not intended as legal advice. Engage an attorney who is licensed in your state to get advice on dealing with any specific legal issue.
© 2020 Michael S. Oswald