Many workers’ compensation cases that are settled include the voluntary resignation of the employee. When this is the case, the employer/insurer request the employee sign an employment resignation and release document as part of the global agreement. Failure to understand this process can result in added costs and missed objectives any settlement.
Meeting Expectations and Avoiding Miscommunications
The employment resignation and release is a legal contract between the employer and employee. Given the nature of this agreement, it is outside the scope of a workers’ compensation insurance policy. This adds to the complexity of settling a claim that includes employment law issues and requires each party to understand their proper role:
- Defense Attorney: Attorneys representing the employer/insurer need to consider many These factors include the scope of their representation in the claim and understanding of the law in employment matters. Any misstep can result in unwanted malpractice claims and professional conduct or ethics violations;
- Insurance Carrier: Members of the claims management team need to be in communication with the employer regarding the resignation of an employee as part of a global workers’ compensation settlement. The consideration or money paid under an employment release is not covered under the workers’ compensation insurance contract;
- Employer: Representatives from the employer need to remember adequate consideration in a release makes an employment law release a binding contract. They also need to communicate their expectations to the insurance carrier and defense attorney regarding materials terms and conditions of the agreement. They can also be expected to pay for legal services rendered for the preparing of the release; and
- Employee’s Attorney: Monies paid under an employment release is taxable income under the Internal Revenue Code. This tax needs to be fully explained to the employee. There can also be considerations for potential legal malpractice and ethical violations if the expectations and terms are not explained fully to the employee.
The Basic Elements of an Employment Release
Given the contractual nature of an employment release, it needs to be in writing and have several key elements. Failure to include these items can result in unnecessary and costly litigation:
- Writing: All voluntary resignations and release agreements must be in writing. It should outline how payments will be made and to whom it will be delivered. The release should also include the timing of payments as there is usually a rescission period outlined by state law. Payments should also be properly characterized for income tax purposes;
- Monetary Consideration: The payment of money is a necessary component for such release – it is referred to as “consideration.” This exchange is generally a nominal amount based on local custom and statutory guidelines, if applicable. The employer is the party responsible for making this payment; and
- Other Matters of Concern: A typical release includes discussion of other issues. This discussion can include issues considering future reference letters, non-disclosure clauses (and what happens if material issues are disclosed to an unauthorized party) and “non-disparagement” agreements.
Mistakes in these areas commonly occur when lawyers with little understanding of employment law matters are involved in the drafting of voluntary resignations and releases. It is also important to understand applicable state and federal laws such as the Fair Labor Standards Act, American with Disabilities Act and Family Medical Leave Act.
Waiting Periods and Settling a Work Comp Claim
The time frame for the rescission of a voluntary resignation and employment release is another important issue as they sometimes interfere with the settlement of a workers’ compensation claim. As a general rule, parties should wait at least 21 days after signing a release before making payment per the workers’ compensation settlement. Failure to understand this can cause a situation where a penalty arises.
Having the employee voluntarily resign from a position in a global workers’ compensation claim is something to consider as stakeholders seek to reduce workers’ compensation program costs. When incorporating these agreements into a global settlement, it is important to avoid pitfalls that may arise when using releases. All interested stakeholders should be aware, seek component legal advice and plan accordingly.
Author Michael Stack, CEO Amaxx LLC. He is an expert in workers’ compensation cost containment systems and helps employers reduce their workers’ comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is a co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder & lead trainer of Amaxx Workers’ Comp Training Center.
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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.