Should a release or separation agreement be prepared for terminating employees?

Companies sometimes opt for releases when separating an employee for cause or because of a reduction in force. When weighing the pros and cons of a release, consider the following issues:

- Is the employee a member of a protected class?

- If so, could that protected employee argue that he was treated differently or held to a different performance standard than other similarly situated, nonminority workers?

- Could a plaintiff attorney see any merit in pursuing a discrimination, harassment, or retaliation (for example, whistle-blowing) lawsuit against your company?

- In a layoff situation, does your company have any plans to fill that position within the upcoming year?

- In a layoff situation, do your company's demographics (age, gender, and ethnicity) poorly reflect the demographics of those about to be laid off? In other words, could a plaintiff attorney argue that your actions might appear to negatively impact a disproportionate number of minority employees?

If your answer to any of these questions is Yes, then a separation agreement may be in order.

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First, remember that one of the key elements of any separation package is ''consideration.'' Consideration is the money or other element of value that you provide employees in exchange for their signing a release. From a legal standpoint, it is the inducement to a contract that validates the transaction. Therefore, you must determine first what appropriate consideration should be offered to the employee in exchange for the release.

Second, remember that if the impacted employee is forty years of age or older, special considerations must given to that individual. Specifically, the Age Discrimination in Employment Act provides that individuals have twenty-one days from the date of notice to review and consider the agreement. Further, it must specifically advise employees of their right to seek legal counsel. In addition, employees must be given seven days to revoke the agreement after they sign it. These ''forty-and-over'' rights are incorporated right into the release.

Third, when a group layoff is at issue, it is best to offer all impacted employees the right to a separation package in exchange for a release (above and beyond company severance). The reason is that, in addition to caring for your soon-to-be laid-off workers, you'll want to ensure that the surviving employees feel that you've handled matters fairly. After all, company layoffs occur when organizations are vulnerable. That means that employees feel vulnerable as well. Retaining talent is critical when companies are shedding staff, so do everything in your power to assure the remaining staff of your commitment to strengthening your business and treating people equitably.

Appendix V is a sample separation letter including an Age Discrimination in Employment Act disclaimer. Note that this is specifically written for a financial services company in California. The purpose of the letter is to demonstrate what a typical release might look like. It should not, however, be copied word for word by your company for use in a layoff situation. Legal counsel should review your final document to conform to the rules and laws of your state.

Should I offer to provide displaced workers with letters of recommendation?

Tough question. The short answer is No, but there may be exceptions or ways around this somewhat thorny issue. The reason for the initial No answer is simple: There is little benefit to your company in providing references about prior workers to prospective employers or headhunters. Yes, it would be the nice thing to do, especially after a layoff. After all, there's nothing you'd rather do than hasten employment for your ex-workers who will soon be in career transition. Even in cases where employees weren't very happy, helping them find productive work elsewhere could save you potential headaches from wrongful termination lawsuits.

However, the downsides are obvious. Claims of defamation await you should you provide false or injurious information that precludes an ex-worker's gaining employment. Other similar types of claims that could be brought by a former employee include:

- Invasion of privacy (for the disclosure of private information)

- Statutory violations (e.g., the California Labor Code makes it unlawful for any person by way of misrepresentation to prevent a former employee from securing other employment)

- Unlawful discrimination (e.g., a former employee could allege that a negative reference was given because of her pre-termination objections to her former employer's unlawful and discriminatory employment practices)

- Negligence (e.g., a recent California court ruled that, once a former employer elects to provide a job reference, the company must provide all relevant information regarding the former employee, both favorable and unfavorable)

Of course, the truth may be an absolute defense to defamation claims related to alleged ''false and injurious statements'' but not necessarily to discrimination, negligence, or invasion of privacy claims. You won't want to face months of litigation in order to determine whose version of the truth—yours or the ex-employee's—is actually correct.

Without a well-defined policy prohibiting your line managers from granting reference information about ex-employees, you'll have a loose cannon on the deck of your ship. After all, you'll never know who's saying what about whom until that lawsuit crosses your desk. Therefore, create a policy requiring supervisors to refer all references to human resources for handling. You'll sleep better at night knowing that all the supervisors in your company are consistently protecting your organization from unnecessary liability every time their telephones ring with someone asking for information about the performance of ex-employees.

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If your company provides its employees with annual performance reviews, then those reviews (as long as they are signed by the employees) should serve as written proof of any ex-employee's strengths, weaknesses, and areas for future development. Simply provide exiting employees with copies of their historical performance reviews so that they can share those evaluations with prospective employers if they wish. Do not, however, forward ex-employees' performance reviews to prospective employers without the workers' permission. That would be inappropriate and could expose your company to liability.

If you give your employees copies of their reviews, it will take you out of the middle. Performance reviews serve the purpose of evaluating a worker's performance, and that's all that prospective companies are interested in during the reference-checking process. Managers need to simply tell prospective employers, ''We typically give employees performance reviews once a year. You might want to check with John to see if he's received any reviews during his stay here. If so, he's free to share them with you if he wishes. Other than that, we're not permitted to engage in verbal performance references and have to refer all calls to our human resources department.'' Problem solved.

What if your company doesn't provide its employees with annual reviews? Then the whole thing becomes a little trickier. You do, of course, have the right to compose letters of recommendation for your employees. However, if such letters are to be written, they should be brief and based on factually documented information in the employee's personnel file, not on subjective claims related to performance. (Even so, there is some risk with this approach because the former employee may disagree with your characterization of his performance. As a result, the former employee may allege that statements in the letter of recommendation are false and injurious.) A sample letter is in Appendix W.

Of course, you can simply refuse to provide any subjective reference information whatsoever and limit your responses to (a) dates of employment and (b) last title held. However, if you feel that such a stringent ''no references'' policy will hurt your ex-employees' chances of reemployment, you may wish to rely on a legal doctrine called ''qualified privilege'' to protect your firm against claims of defamation. (Defamation comes in two forms: ''slander'' if the information shared is spoken; ''libel'' if the information shared is written.)

The principle of qualified privilege offers limited protection to employers in most states in defamation cases. To receive the benefit of this protection, you must show that:

- You made reference statements in good faith and based on credible evidence

- You and the person to whom you disclosed the information (i.e., the prospective employer or headhunter) shared a common interest

- You limited your statement to this common interest

The law recognizes that a former employer (that's you) and a prospective employer share a common interest in the attributes of a job candidate (i.e., your former employee). To gain the protection of the qualified privilege, your main task will be to stick with the objective and verifiable facts regarding the ex-worker's performance or reasons for leaving your company and to avoid half-truths, subjective opinions, or conclusions about that individual. If you can establish that you're protected by the qualified privilege doctrine, then the only way that a former employee can succeed in a defamation lawsuit against you is to prove that (a) you knew that the information was false but that you passed it on anyway or (b) that you acted recklessly in sorting out the facts.

Remember, however, that qualified privilege generally pertains only to defamation claims. As stated earlier, reference checks raise other legal issues beyond defamation that could cause problems for you. Still, if you choose to engage in providing reference information, you should require the former employee to sign a request for a detailed reference letter, as well as a release for your company.

How do you prepare for releasing reference information about your ex-employees? At the time of the layoff, create a form for employees to sign that acknowledges permission for you to provide references. A sample form can be found in Appendix X. The form may look like this but should be reviewed by legal counsel to conform to the laws of your state.

Of course, such a release may not protect you from claims of defamation, invasion of privacy, discrimination, or negligence. It will, however, help to open the lines of communication with your soon-to-be ex-employees, clarify that you will treat them objectively, and stipulate that you will limit your comments to work performance matters only.

In addition, share with your employees up front that only specific people in the company will be authorized to provide verbal references or respond to reference requests, and identify who those people are. This way, your company may have a defense should a former worker direct a prospective employer to contact an unauthorized company representative who provides negative references that damage the individual's employment prospects.

One final note regarding sharing references with prospective employers: Should you provide references if you've terminated an employee for discrimination, sexual harassment, or violence in the workplace? The answer that most employment lawyers will give you is that it depends on the laws of the applicable jurisdiction. You may indeed have an affirmative responsibility to share information with prospective employers about an ex-worker's conduct if it involved an unreasonable risk of harm to others.

Check with outside counsel regarding the specific facts of the case before sharing any reference information whatsoever with prospective employers. After all, the balance between an individual's privacy rights and a prospective employer's need to know can sometimes be difficult to determine, especially when dealing with matters like discrimination, sexual harassment, or violence in the workplace.