July 2, 2014
Authored by: Bill Wortel and benefitsbclp
Separation agreements almost always contain release provisions whereby one or both parties agree to waive claims that they may have against the other party; when the employee releases claims, he or she typically gains compensation or a benefit that he or she is not already entitled to receive. In a world in which every terminated employee is a potential plaintiff, employers should have a good grasp on how to draft a valid and enforceable release in a separation agreement. Here are five tips every employer should consider when drafting this type of a release.
Tip No. 1: Offer Valid Consideration
In order to have a valid and enforceable release agreement, the employer must provide the employee with payments or benefits the employee is otherwise not entitled to receive. Therefore, payments or benefits the terminated employee is otherwise entitled to receive either by law or pursuant to an employment agreement generally do not satisfy the consideration requirement. For example, conditioning the employee’s release on the receipt of his final paycheck, earned commissions or vacation pay specified by an employee handbook or other policy will not constitute valid consideration. While severance pay is the most common type of consideration, it is not the employer’s only option. Valid consideration can also include notice pay (i.e., pay in lieu of notice), continuation of health benefits at the employer’s expense (note, there are tax