Release of Claims Form Defined
A Release of Claims Form is simply a legal document that an employee and employer enter into to formally waive any employer-employee claims the employee may have against the employer in exchange for certain severance benefits. A Release of Claims Form may be used by employers to shield themselves from employee claims and can be an effective tool in any layoff or termination situation.
In addition to the waiver of various claims, Releases typically contain a representation and acknowledgment that the employee has not filed any claims or actions against the employer, including, but not limited to, claims under federal, state, or local laws. In order to facilitate obtaining this representation and acknowledgment , Releases often require that the employee represent and agree to both: (a) refrain from filing any such claims; and (b) withdraw any actions or complaints pending before any administrative agency or court.
A common challenge associated with drafting Releases is determining the appropriate scope of claims to be covered by the Release – both in terms of substantive claims and time frame. Generally speaking, while an employer may require employees to broadly waive their potential claims in a Release Form, employees are unlikely to execute overly broad releases. In that regard, Courts have been willing to limit the scope of a Release to the specific time frame during which the employee was employed by the employer (e.g., 1997 – present) or during which the employee actually performed work for the employer (e.g., 1998 – 2000).
When to Use a Release of Claims Form
While release of claims forms are frequently used in conjunction with settlements of employment-related disputes, their use is not limited to such circumstances. For instance, such forms can be used in the context of:
Severance Agreements: Employers often seek to obtain signed release of claims forms from employees leaving their employment in order to limit their liability for various claims the departing employee may have. Severance agreements frequently contain such forms as a condition for the payment of the severance amount.
General Releases: In instances when the parties to a dispute do not desire a full-blown litigation, but rather are interested in settling their dispute through negotiation, they may agree to a short, general release of claims form in order to conclude their dispute before it even reaches litigation stage. Such forms often contain a broad release provision in which the releasor agrees to release the other party from "all claims, whether know or unknown, now existing or hereafter arising" that may arise from the transaction at issue, as well as a covenant not to sue the other party in the future for any claims that fall within the scope of the release.
Mediations: Courts will frequently encourage the parties to a dispute to attempt to resolve their dispute through mediation. If the parties are successful at mediation, they will not only be required to sign a settlement agreement, but if they desire to prevent future claims from arising from the facts underlying their dispute, they will likewise need to execute a release of claims form that will bar their respective ability to bring future claims against each other arising out of the subject matter of their dispute.
Confidentiality Agreements: Parties may be willing to settle an existing dispute in exchange for a promise that the other party will not disclose the existence of the dispute or the terms of their agreement. Such confidentiality agreements typically require the parties to sign a release of claims form as well so as "take the sting out of" or otherwise prevent their opponent from trying to bring any claims against the other party for the facts underlying their dispute as the result of any breach of the confidentiality agreement.
Important Provisions in a Release of Claims Form
Below are some of the essential elements which should at least be in a Minnesota Release of All Claims form:
- Parties involved. At a minimum, the full, company name(s) and names of all individuals involved in the legal dispute should be included. In addition, the form should clearly identify the company and/or individual(s) released.
- Claims being released/relinquished. If the sequence of events is clear, then the general nature of the dispute is usually sufficient. However, the claim should be described, and in some cases the specific claims or complaints should be attached.
- Legal validity. Whether or not signed under threat of termination or some other coercion, the form needs to be valid under no-coercion statutes. The individual’s time for revocation under the federal ADEA is usually sufficient. In addition, care should be taken to avoid contact for unlawful purposes under Section 8 of the NLRA, Union Organizing Activity.
Pros and Cons to Signing a Release of Claims Form
The fact that they are asking you to sign saying you are giving up any right to sue may not legally mean a whole lot. The sad truth is that once you sign, they are going to claim you can’t sue them and they will try to use the release to get out of a case. It is still important, however, to know what is in this release that they want you to sign and how it works.
The main reasons you might agree to sign such a form would be for a tax benefit or because you would be getting a lump sum payment. A lump sum payment might not be available to you if you go and file a lawsuit and sometimes parties need to clear up a false claim made about them.
Most people do not realize there is a risk in agreeing to a release of claims and signing it. They think it is just a formality. It is not. It is a legally binding contract and if you sign it, you have most likely given up your right to proceed with your case.
Other risks when signing such a release include the possibility of having current or former employees quietly sign them thinking that they just have to do it because they work there. Signing a release can also open up a company to a thorny retaliation claim, as it can be viewed as the company trying to get information on employees in order to retaliate against those who make good faith complaints earlier.
In terms of the legal implications, signing such a release likely means that you have bargained away or agreed to give up your right to pursue legal action over the type of claim you signed a Release for. So you need to really review what you are signing, and see what you are actually giving up. Many times, companies will go beyond what the current law requires and ask for things they don’t really need. Sometimes though, we see employers try to sneak clauses into the release agreement that are illegal under the law but they still try to get employees to sign them anyway.
Drafting a Release of Claims Form
A release of claims form should generally contain at least 6 distinct sections.
The Claim Released
Clearly identify the claim being released. This is essential for establishing the scope of the parties’ agreement. While it’s not practical to list out every potential non-legal claim that exists in a relationship (e.g., a lawsuit claim may also contain a "claim" for negligence, breach of contract, fraud, etc.), you should at a minimum set forth the legal claim/dispute being addressed.
General Release by __________
The party providing the release should state, in no uncertain terms, that that party is releasing all claims against the other party. Note: if you are using a generic form agreement, be sure to amend the general release section to ensure the correct party/ies are signing the release. For example, you may have an agreement that refers to "Releasor" and "Releasee," but the Releasor may be "Releasor <name>" while the Releasee is "Releasee <legal entity name> , " etc. It’s key to ensure the real parties involved are named correctly in the release.
General Release by _______________
The third key section of the release of claims form is the release granted by a party’s agent. This is a release by the agent or representative of Releasor on behalf of and with the authority of Releasor.
Other Provisions
There may be other areas to address in your release of claims form depending on the circumstances of the claims being released. The above sections are standard, but you should review with counsel the scope of your settlement agreement and your specific circumstances so that you can identify any other sections that might be helpful in your case.
Considerations for Statutory or Regulatory Agency Releases
There are certain times when you’ll find you need to release a claim against a statutory or regulatory agency. In such cases, you should look to your legal counsel and either the agency itself or your agreement with that entity to determine your options. Statutory or regulatory agency releases are usually quite different from a normal release and must be handled with extra care.
Legal Issues and Enforceability
In order for a release of claims form to be enforceable, it must be supported by adequate consideration. Good consideration can be found in an employment relationship, particularly if an employer provides an employee with some valuable consideration in exchange for the release. In addition, there are specific requirements for the enforceability of certain types of releases of claims form, such as those signed as part of a severance agreement by persons over 40 years of age.
However, there are several factors that contribute to the enforceability of a particular form, including:
When there is a dispute about the validity or enforceability of the release, the first step for litigators is to conduct discovery to determine whether the release was properly executed and consider alternative defenses to enforcement. These generally include:
Although it may be difficult to set aside an otherwise valid release of claims form in most circumstances, litigators must still ensure that the release passes constitutional muster, was executed voluntarily, that no lies or misinformation were provided in its inducement, and that the execution of the form did not waive public policy or statutory rights.
Consult an Attorney About a Release of Claims Form
When you are presented with a release of claims form, whether from your employer or in connection with a settlement of a claim, it can be a materially significant moment that can require a complete understanding of what you are doing. Even more so than in most settlements, a release of all claims receives heightened scrutiny and requires proper articulation to ensure you are releasing only the intended claims. Such a release should not be taken lightly and properly consulting an attorney can make sure your rights are protected.
You should consult an attorney if you are unsure of what the release document encompasses, if you are being pressured to sign the release or settlement, if you believe the settlement amount is insufficient, or if you simply think that the settlement may include claims you do not intend to release. You should also consult an attorney if the form contains language stating that you are also waiving future rights such as for employment or to bring a civil cause of action. When an employer asks you to sign a release of all claims they often mean it, and the wording will often be exactly that: "all claims" and potentially "all known and unknown" claims. Disentangling those claims which are legally released from those which may not be the subject of the release can be very difficult for the employee who is not an attorney.
An important reason to consult an attorney when confronted with a release of all claims in any context is that the judge is likely to look at the release and whether the release was entered into knowingly and voluntarily in determining whether the release was effective . If the release itself and an accompanying affidavit attesting to the voluntary execution of the release do not reflect the proper considerations, the release may be determined not to be valid. Conversely, the situation may present itself where the employee believes that the release is meant to encompass a particular claim, but with the proper advice the employee realizes that the claim is not legally subject to release. That is when an attorney may be able to aid you the most: identifying the claims that are not legally subject to the release.
Importantly, even where a release appears to be appropriate, the release itself will almost certainly include language that the release is part of a settlement of any "disputes" you may have with the employer. Although you may not intend for there to be disputes with your employer, if the form includes "disputes" among the items being released, you may have no ability to challenge the release. Appropriately consulting an attorney may allow you to ascertain where your rights will not be compromised by that language and where the release will be limited in scope.
Consulting an attorney is also critically important in determining whether the amount to be received is appropriate. Where an employer may be confronted with litigation or paying for legal costs concerning a claim, it may make economic sense to just pay a sum of money to avoid those future expenses. Whether the amount received through the release or settlement matches those costs, and whether you can move on quickly from the matter, may be something an attorney can help you decide.