If you’re an employer, one of your best defences to prohibit further legal action from a dismissed employee is a valid release form. Therefore, if any doubt exists, a dismissed employee should not execute — and an employer should not pay — until both parties are satisfied and this 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 further payments until a release is received.
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Some believe my approach is wrong. They contend that by paying an employee the full entitlement upon dismissal, whether or not a release is signed, it will make the employer look more reasonable in the eyes of the judge. But the fact is few cases end up in front of a judge. Most are settled out of court at mediations, pre-trial settlement conferences or between lawyers. In these instances, there are increasing pressures for litigants to settle because of the delay of waiting for a trial. Therefore, employers paying what they deem as reasonable, without obtaining a release, will be pressured into paying more just to quickly settle the case.
As well, dismissed employees will predictably be re-employed at some point. When an employee quickly obtains a comparable-paying job, the ex-employer is off the hook for any remaining severance. 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 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 follows. With a severance package or salary continuance 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 go for checkmate if the former employee wishes to go to war.
Finally, many employers believe that by requiring a dismissed employee to sign a release, they are encouraging them to visit their lawyer, thereby increasing the chances he or she will come back with heightened demands. This is a valid concern, but if an employee seeks independent legal advice and then signs the release, it becomes more difficult to assert the deal was improvident and should not be enforceable.