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Releases and Severance Agreements

Whenever you are involved in firing or laying off a worker, there is the possibility that the laid-off employee will take legal action against you. To avoid this threat, you can negotiate a severance agreement with the employee. As part of the agreement, the worker will sign a release stating that he or she gives up some or all rights to sue you.

When to use a release. Although employee releases have many uses, they are most often used when you lack proper documentation to fire, but you want to cut off an employment relationship and avoid the possibility of a lawsuit. They can also be used to offer early retirement to a worker, or when you are seeking to end an employment contract early by "buying out" the worker.

To be effective, the release must be:

  • in writing
  • signed by the employee who is waiving the right to sue
  • a knowing and voluntary waiver
  • supported by adequate consideration (This means that you must give the employee something of value in return, something that he or she would not receive without signing the release.)

Make sure that the release can be read easily (this means that the typeface should be large enough and the language used can be understood by the employee). The release should specifically refer to employment laws involved in the waiver of rights. Your object is to be sure that the employee can't claim he or she didn't know what the document said. Under no circumstances should you trick the employee or make it seem that he or she had no choice about signing it.


Here are a few tips to increase the chances that your release will be "iron-clad" if challenged in court:

  • Allow the employee time to think about signing it. The more time the employee has, the more likely that a court will not believe that the employee was forced to sign the release.
  • Encourage the employee to review the document with an attorney of his or her choice before signing it.
  • Allow the employee a period of several days to change his or her mind after the release is signed.
  • Allow the employee to negotiate the terms and conditions of the release (for example, let him or her substitute different benefits for the ones you offered). That way, a court will be more likely to believe that the document was signed willingly.

The issue of consideration. Like all contracts, in order to be valid, a waiver must be supported by "adequate consideration." That means you must give the worker something of value in exchange for the waiver, beyond what you are required to do by law. If you have always given severance pay to workers you laid off, you must give the employee something more than your normal severance pay in exchange for the waiver.

Courts tend to like to see some dollars changing hands, so you might consider offering a lump-sum payment of at least two weeks' pay. However, you can also offer terms like an agreement not to contest payment of unemployment benefits, or an agreement that you will provide a satisfactory job reference if requested by any prospective employers. These things take little or nothing from your bank account, but can be valuable to the worker.

Business Tools

The Business Tools area contains a sample release from liability that you can tailor for your own situation.

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