Catch in Release

Gil Materras (Not his real name) worked as a route supervisor for a mid-sized waste-hauling firm in the Southwest. His five-year employment ended in late 2006 amid a nasty swirl of charges and counter-charges about shortfalls in his on-the-job performance and discriminatory promotional practices by the company.

When the dust settled, Mr. Materras and his employer signed a resignation agreement calling for severance benefits in exchange for his release and waiver of “all claims of any nature … including claims for other personal remedies or damages sought in any legal proceeding or charge filed with any federal, state or local agency … and claims or charges against the Released Parties seeking monetary relief or other remedies ….”

No litigation resulted from the Materras situation. The company filled the vacancy from the lower ranks, and the firm reports that its operations are running smoothly.

For his part, Mr. Materras soon landed a job outside the waste industry at a comparable salary and benefits. Indeed, the severance payment amounted to a small windfall. Only later did the company realize it had dodged a bullet. Other companies have not been so lucky.

Employers customarily offer severance benefits to discharged employees in exchange for a broad-brush release of claims. However, some aspects of these releases may be unenforceable or may expose the employer to liability under federal law.

No provision in a release can prevent an employee from filing a charge of discrimination with a federal agency such as the Equal Employment Opportunity Commission (EEOC). State laws may keep the door open to corresponding agencies at the state and local level. Such offices have the right to investigate allegations of discrimination despite what private parties might stipulate. However, an employer can require the employee to waive his or her right to any financial recovery in any such proceeding.

Notably, a pattern of federal court decisions is developing where employers are being held liable for merely inserting language that purports to forbid the employee from filing EEOC charges. Courts have deemed such wording as unlawful retaliation under federal law. In addition, paying severance benefits only if an employee agrees to withdraw an EEOC charge also has been ruled retaliatory.

Similarly, an employee who agrees to waive his or her rights under the Family and Medical Leave Act (FMLA) in exchange for severance pay may still keep the money and file an FMLA claim. A U.S. Department of Labor regulation blocks any waiver of FMLA rights unless a court or the department itself approves the waiver.

Severing ties with an employee can be a difficult experience, and, in such circumstances, firms understandably want to protect themselves as much as possible from future liability. However, they have to be realistic.

Employers must be sure that their releases are drafted both with care and with a firm grasp of the law. Otherwise, they may simply end up buying an empty promise and opening the door to unanticipated claims.

Barry Shanoff Legal Editor Rockville, Md.