May 15, 2017
Authored by: Bill Wortel
Common Mistake No. 2: Paying a Separating Employee Something Extra Without Requiring a Waiver and Release
This post continues the discussion of common errors made by employers terminating employees which can be easily avoided.
Whether it is advisable to pay a separating employee something extra in exchange for a waiver and release of claims against the employer depends on a number of factors, such as the strength of the potential claims that the employee would be waiving and the likelihood of the employee filing suit. That said, an employer should never pay separating employees money to which they are not otherwise entitled without requiring the execution of a waiver and release.
While the wisdom of this advice might be obvious to some, it is not uncommon in my experience to see an employer gratuitously pay a couple of weeks pay to a separating employee without requiring the employee to execute a waiver and release. As you might guess, this mistake typically comes to my attention because the separating employee is threatening the employer with legal claims after depositing the employer’s gratuitous severance payment, given further credence to the first rule of employment law: No good deed goes unpunished.
While employers sometimes voluntarily provide severance to separating employees at the time of separation, other employers contractually obligate themselves to provide severance (without a corresponding duty on the part of the employee to provide a release) through poor drafting of employment agreements. For example, the employer promises in an employment agreement at the beginning of the employment relationship to pay the employee severance under certain circumstances (typically, termination without “cause” prior to the end of the employment term), but fails to condition payment on the employee’s execution of a waiver and release agreement. This arrangement permits the terminated employee to accept the severance and then sue the employer for other forms of relief under applicable law.
Whatever the circumstances may be, an employer should always condition the payment of something to which a separating employee is not otherwise entitled on the execution of a valid waiver and release agreement. In doing so, the employer ensures that its generosity will not be repaid with a lawsuit brought by the separating employee (and funded, in part, by the employer’s own severance payment).
If you have any questions about terminating employees or have any other employment issues, do not hesitate to contact Bryan Cave’s Labor and Employment Client Service Group.