Avoiding Employment Lawsuits–Part III

So far, I’ve considered the manner in which an employee is discharged and the role of unemployment compensation in an employee’s discharge.  Now, let’s look at the use of separation agreements as a way to avoid employment lawsuits.

When you know that a difficult termination is about to occur and that there’s the likelihood of an employment lawsuit, it may be worthwhile to consider the possibility of entering into a written termination agreement, separation agreement, or settlement agreement with the employee.

In this agreement, you would typically agree to provide separation pay and perhaps other benefits to the employee. In return, the employee would release you from any claims and lawsuits that he might have or claim to have against you.

If the employee is 40 years old or older, he is in the protected age group.  And if you want to obtain a release of a potential age discrimination claim by this employee, special requirements must be satisfied insofar as the provisions of the agreement are concerned.  There’s magic language to be used.  In other words, have a lawyer prepare the agreement.

Come to think of it, before discussing the possibility of such an agreement with an employee, legal advice should always be obtained.  This kind of agreement isn’t right for every situation.  Depending on the circumstances, your lawyer may be aware of what has happened in similar cases and be able to give you advice that will be helpful in obtaining the agreement you want or in advising you to refrain from even trying to obtain the agreement in the first place. 

One thing to keep in mind is if you attempt to obtain such an agreement and if the proposed deal turns sour and if it’s necessary to go ahead with the termination anyway, the fact that you have attempted to obtain the employee’s release of certain claims may be used against you.  In other words, the employee could then say, for example, that the termination was based on age and point to the proposed separation agreement to argue that the employer’s real concern was to get rid of an older employee.

Another practical consideration to keep in mind is that if you aren’t willing to offer enough separation pay, it may do more harm than good to even attempt this type of agreement.  This is particularly true if an employee has been with you a long time.  Rather than offering such an employee a small amount of money in return for a release (and making him mad), it’s probably better to make sure that you have your ducks in a row and go forward with the termination.

These agreements can be helpful, however, in heading off lawsuits that result from dangerous terminations.  When you think about it, six to twelve months of extra compensation (severance pay) may be a small amount to pay to avoid a serious lawsuit.

If you have different thoughts on this subject, let’s hear them.