Sometimes It Pays to Release the Release
“We aren’t going to pay severance without getting a release of all claims in return.” “If we pay severance and don’t get a release, we’re just funding a lawsuit against ourselves.” These are views employers commonly express when severance is under discussion and we recommend it not be tied to a release. “Whose side are you on?” usually finds its way into the mix, too. However, there are reasons to forego releases, particularly where the amount of severance offered is modest or the employer has no particular reason for concern about a lawsuit.
Requiring a release can sometimes unnecessarily inject legalistic and adversarial dimensions into the severance process. An employer may genuinely want to provide a terminated employee with a reasonable severance amount to help that person move on and find employment elsewhere. When a release is added to the mix, however, it may obscure or confuse this point. The company can explain that a release is required whenever severance is provided, but the employee might suspect something unlawful has occurred. Some releases make this even more likely by expressly encouraging it. To effectively release claims under the federal Age Discrimination in Employment Act (ADEA), for example, the release agreement must, among other things, clearly and plainly state that the claims being released include discrimination on the basis of age and the employee has the right to consult legal counsel and should do so. Thus, the release advises the employee to do precisely what the severance is intended to persuade him or her not to do — i.e., retain legal counsel.
When only a modest severance is offered, the likelihood of a detrimental interpretation is magnified. Meanwhile, as a practical matter, a modest severance is not likely to induce an employee to forfeit a claim that has merit. Thus, when conditioned on executing a release, a modest severance offer does not improve the employer’s position with respect to those few employees who present genuine reason for concern, while simultaneously disrupting its relationship with the larger number of employees whose circumstances did not warrant a release in the first place.
To be sure, releases are often warranted and there is value in getting closure on potential claims when employees leave the company. Such releases are especially appropriate and effective when coupled with substantial severance or when connected with a larger scale reduction-in-force or reorganization. Nevertheless, employers ought to be thoughtful about this process. Why disrupt the positive dynamic of a modest severance by insisting upon the execution of a release? Sometimes there is no good answer to this question, which is why the question needs to be asked in the first place.