Employment Claims

Employment Claims - 6/27/08

Jeff: Unemployment is increasing . More employees are receiving pink slips from their bosses along with a legal document asking them to release their employer from all sorts of employment claims. What does this mean and should you sign? Here discuss these issues is attorney Michael Solomon

Jeff: In these tough economic times we all know people who have received a notice from their employer telling them thanks for all your effort, your fired and please sign this ten page document releasing us from liability. What should people do?

Mike: Many times when employers terminate employees they offer them a severance package which may include severance pay and continuation of health insurance coverage. The employee promises to give up all claims against the employer prior to termination of employment. This is called a release. Usually the employer tells the employee that they will get whatever retirement benefit they are allowed under the retirement plan document. Normally this solves the problem.

However, in a recent case employees who were terminated by the Xerox Corporation and signed releases found out that unintentionally they lost some of their pension benefits.

Here's what happened. Xerox Corporation was involved in litigation with employees regarding the formula for the calculation of pension benefits. During that time some employees were let go and signed a release giving up all claims against Xerox company in exchange for one years severance pay. The release did say that the employees would receive anything to which they were entitled by law. The employees felt that meant they would get their pension benefit. After they signed the release a Federal Appeals Court said that Xerox Corp. miscalculated the amount of employee pension benefits and owed employees more money. However the Federal Appeals Court stated the employees who signed the release gave up the rights to the increased corrected pension benefits.

Jeff: What should employees do who receive a release?

Mike: The courts have made it clear that you can give up your rights to pension benefits or other employee benefits if you knowingly and voluntarily sign a release. A release is an important document . You should take the following steps:

Step #1- Review the document carefully. A release usually has a lot of legalize so you should have an attorney review it also. Most employers will give you weeks to review the document before you sign. As a matter of fact if you are waiving an age discrimination claim you need to be given 21 days to review the release and have another 7 days after you sign to change your mind.

Step#2 – Sit down with your accountant and/or financial advisor to calculate the financial and tax impact of the severance package. The severance pay will be subject to income tax. You may have to make decisions about payouts from your retirement plans and make elections about health insurance coverage. All of these decisions have a big tax and financial impact. Make sure you get the correct advice before you sign the release.

Jeff: Thank you.