NFIB

Protect Yourself From Lawsuits
05/ 03/ 2004

by Milton Zall

Many employers augment their severance packages with "no-suit" agreements, which offer employees increased severance benefits in exchange for an agreement not to sue their former employer.

As employment litigation continues to rise, many companies with written severance package plans include some provision that says the receipt of benefits indemnifies the employer. In some instances, non-compete agreements and provisions concerning proprietary information are rolled into these "no-suit" contracts.

Employment law experts counsel employers to make sure that the enhanced severance package is seen as an added bonus, not a payoff. If employees feel that they are being rewarded for prior service, rather than bribed to keep quiet, then "no-suit" agreements serve their intended purpose.

3 Legal Requirements

Your no-suit agreement must clear the following legal hurdles:

1. Employees must know what they are giving up. Be very specific; an ambiguous release does not work in your favor. Tell your employees to contact a lawyer to ensure that they fully understand the effect of the release and what they are giving up.

2. Workers must sign voluntarily. To ensure employees can't claim they were coerced into signing, give them sufficient time to review the contract's provisions.

3. The incentives offered must be in addition to what the employee is entitled to. A "no-suit" agreement must make clear that the employee is giving up a right to sue in exchange for benefits that the company would not otherwise offer.

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This article originally appeared in the November/December 2001 issue of MyBusiness Magazine, NFIB's member magazine.

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