Checklist for Improvements to Consider re Claims Releases
There is nothing worse for an employer than paying money to settle claims, and then finding that its claims release is invalid - or the subject of further litigation. Listed below are provisions by which employers may avoid having their claims releases backfire.
1. To Avoid Challenges to the Validity of the Release:
(a) __ Be sure the release references consideration that is valid under state law to support not only any claims or other rights that the former employee is releasing, but also any new or beefed-up restrictive covenants (such as non-competes and non-solicits).
(b) __ Consider eliminating covenants not to sue, because that will enhance satisfaction of ADEA's "understandability" requirement.
(c) __ Include a sentence along the following line, in order to avoid retaliation claims:
(d) __ Out of an abundance of caution, state that the individual is not releasing claims that cannot be lawfully released, in order to defuse arguments that the release is overly broad and therefore invalid. But see Edwards v. Arthur Andersen LLP, 44 Cal.4th 937 (2008), upholding the validity of a release of "any and all" claims, with the court explaining that:
2. To Protect Employer's Business Interests:
(a) __ Structure the severance to fall within the scope of ERISA, for the reasons described in the article "Say Hello to Smart Good-byes."
(b) __ Use the release agreement as leverage to establish (or to tighten the enforceability of) non-competition, non-solicitation, and other loyalty covenants.
(c) __ Require cooperation with post-employment transitional requests from the employer, as a condition for receipt or retention of severance.
3. To mitigate litigation risks:
(a) ___ For payouts that cash out bonuses, stock awards, or other formula-based compensation, refer to specific dollar amounts to the maximum extent possible.
(b) __ See Litigation Precautions Checklist, in order to assure consideration of provisions that a release agreement could include in order to provide for efficient claims resolution (coupled with deference to employer decisions).
4. To Avoid Tax Problems: Assure compliance with Code Section 409A
Copyright © Joseph Poerio. All rights reserved.