If terminating an employee, don’t pay without a release
Author: Daniel A. Lublin
If you’re an employer, one of your best defences to prohibit further legal action from a dismissed, and typically aggrieved employee, is a valid release. Therefore, if any doubt exists, a dismissed employee should not execute — and an employer should not pay — until both parties are satisfied a mutual agreement has been reached and is reflected in the content of the release.
Despite this, too many companies make the strategic error of paying an employee severance, regardless of whether or not a release has been signed. In my view, there are excellent reasons to do otherwise. If an initial severance offer is rejected, rather than fund litigation against themselves, employers should pay only the minimum severance required by law and withhold any further payments until a release is executed and received.
Some believe my approach is wrong. They contend that by paying an employee her full entitlement upon dismissal, whether or not a release is signed, it will somehow make the employer look more reasonable in the eyes of the judge. But the fact remains that very few cases actually end up in front of a judge. Most are settled outside of court at mandatory mediations, pre-trial settlement conferences or between lawyers, either over the phone or in writing. In these instances, there are increasing pressures for litigants to settle the case as the risks and delay of waiting for a trail encourages an early resolution. Therefore, employers paying what they deem as reasonable, without obtaining a release, will inevitably be pressured into paying something more just to quickly settle the case and avoid costly litigation.
As well, dismissed employees will predictably be re-employed at some point in the future. When an employee quickly obtains a comparable-paying job, the employer who did not pay full severance gets off the hook for any remaining money. This is particularly true insofar as dismissed employees who only receive their minimum statutory entitlement are typically faced with strong demands to accept another job quickly, just to pay the bills. When this happens, the maximum entitlement they would have otherwise received is vastly reduced.
The psychology of negotiations or litigation also favours my approach. In wrongful dismissal cases, employers must appear battletested and prepared to go to war. Employees who can spot holes in their ex-employer’s armour, are more apt to go to battle, bringing the time and expense that usually follows. With a severance package or salary continuance conveniently in hand, an ex-employee has no motivation to settle on any other terms but his or her own. Therefore, an employer that funds litigation against itself risks the double jeopardy of paying an employee to sue and encouraging other employees to follow suit. For this reason, I counsel employers to pounce on the financial anxiety of a recently dismissed employee and immediately go for checkmate if that former employee wishes to go to war.
Finally, many employers believe that by requiring a dismissed employee to sign a valid release, they are encouraging them to visit their lawyer, thereby increasing the chances that he or she will come back with heightened demands. This is a valid concern but the benefits can outweigh the risks. If an employee chooses to seek independent legal advice and then signs the release, it becomes much more difficult, if not impossible, to assert the deal was improvident and should not be enforceable.