Description

Separation and Release of Claims Agreement (CA)

Summary

This is a California-specific Separation and Release of Claims Agreement. Separation and release of claims agreements are sometimes referred to as a release, waiver and release, or severance agreement. This Illinois-specific separation and release of claims agreement specifies certain terms of an employee’s separation from employment. Such terms include a release of legal claims against the employer in exchange for a benefit the employee is not otherwise entitled to receive. This agreement assumes no other entitlement to separation pay or benefits, whether by prior agreement, group plan, employer practice, or for any other reason.

Details

Using a separation and release of claims agreement provides several benefits, including:

• Minimizing the risk of litigation by the employee following separation.
• Binding the employee to new post-termination restrictive covenants to which the employee was not previously bound.
• Reminding the employee of continuing obligations under any existing restrictive covenants and having the employee re-acknowledge those obligations.

Separation and release of claims agreements can be used regardless of the reason for an employee’s separation from employment. This agreement may be used for voluntary or involuntary separations and for single terminations or group terminations. For example, a group termination may be a reduction in force. However, separation agreements must meet certain specified requirements when used with employees aged 40 or older to release claims under the federal Age Discrimination in Employment Act (ADEA). Employers must meet additional requirements when terminating these employees as part of a group termination program or offering an exit incentive to two or more employees.

Some claims under federal and state law cannot be released regardless of any benefit offered in exchange for the release. Other claims can be released only under particular circumstances.

Employers should be aware of three California laws that may impact separation agreements entered into on or after January 1, 2019:

• Right to Testify About Sexual Harassment or Criminal Conduct. When an employee (or any party) is required or requested to attend a proceeding pursuant to a court order, subpoena, or written request from an administrative agency or the legislature, any provision of a contract or settlement agreement is void and unenforceable if both:
  • The agreement was entered into on or after January 1, 2019; and
  • It waives the right of an employee to testify about alleged sexual harassment or criminal conduct by the other party, such as an employer, including its agents or employees, in an administrative, legislative, or judicial proceeding.
• California’s STAND Act. Effective January 1, 2019, California’s Stand Together Against Nondisclosure (STAND) Act impacts settlement agreements involving certain claims or complaints, such as those on workplace sexual harassment or sex discrimination, filed in a civil or administrative action. The law does not appear to prohibit confidentiality clauses in separation agreements where parties settle issues in the pre-litigation phase. Such circumstances may include where a demand letter has been sent, but no claim has been filed with an administrative agency or in court. Nevertheless, employers should consult with their counsel to discuss the potential impact of the STAND Act.
• Release of FEHA Claims. Effective January 1, 2019, California law limits the scope of releases and non-disparagement clauses. It is unclear whether the new law applies to separation agreements. Except in the context of a “negotiated settlement agreement,” California law makes it unlawful for an employer, as a condition of employment or continued employment, or in exchange for a raise or bonus, to require an employee to sign:
  • A “release of a claim or right” under the California Fair Employment and Housing Act (FEHA); or
  • A non-disparagement agreement or other document that purports to deny the employee the right to disclose information about unlawful acts in the workplace, including sexual harassment.

The new law does not provide any clear exception to general releases in separation or severance agreements where the employee has not filed a claim, including through the employer’s internal process. Separation agreements typically concern only post-employment terms and conditions, so the law arguably should not apply. However, separation agreements are generally negotiated during employment about how to end employment. As such, these agreements may arguably be construed as a condition of employment or continued employment. Employers should consult with their counsel to discuss the potential impact of this new law.

Other Challenges to Confidentiality and Non-Disparagement Clauses

Many provisions in separation and other agreements that historically were considered routine and boilerplate have also been scrutinized by the National Labor Relations Board (NLRB). Recent NLRB decisions and guidance suggest that non-disparagement and confidentiality provisions, even when imposed on individuals no longer employed, may be viewed as interfering with employees’ Section 7 rights under the National Labor Relations Act (NLRA).

Confidentiality provisions in settlement and severance agreements have also come under recent scrutiny by securities regulators, such as the Securities and Exchange Commission (SEC).

In the wake of the #MeToo movement, several jurisdictions have passed or are considering laws that restrict an employer’s ability to require employees to abide by confidentiality provisions when settling sexual harassment claims. Employers entering into a separation agreement to resolve claims or allegations of sexual harassment should keep abreast of these laws and the requirements in those jurisdictions where they employ workers.

This Agreement is intended for use with a departing employee who has not yet filed any charges or legal claims against the employer. If any charges or lawsuits are pending, the employer should use a settlement and release agreement.