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Former Employees Can Sue After Settlement

You have an employee that does not work out. The employee then brings a frivolous claim saying that you or someone in your business did things to them that did not happen. To put the matter behind you and to avoid a costly defense, you enter into a settlement with the former employee. Case closed? Not necessarily.

The federal appeals court which covers Oregon ruled that actions taken after a settlement agreement can expose an employer to liability. A respiratory care practitioner that had been terminated from a medical center was allowed to resign instead as part of a comprehensive settlement. After the settlement, a state regulatory board asked for information relating to the respiratory care practitioner. The medical center provided the information requested and provided additional information, beyond the scope of the request that was damaging to the former employee. Information favorable to the former employee was not provided. Information on the termination of the employee was also included.

The court ruled that since the former employee was allowed to resign, the employer should have corrected its records. The court said it looked like the employer was seeking revenge for a complaint the former employee had made and allowed the former employee to bring a retaliation claim under federal law.

The employer claimed that a privilege provided by state statute protected it when it cooperated with the state investigator. The federal court said no, federal law trumped the state statute.

One final point I would like to highlight, the request from the state investigator came just two weeks after the settlement. The court stated that the timing of the employer's response was sufficient to raise an inference of a "casual connection" between the former employee's complaint and the employer's action. It is easy to envision a situation where the left hand did not know what the right hand was doing and the information was released before the former employee's file could be revised.

Was that the instance in this case? I do not know. This case will go to the jury unless the parties settle.

There are several lessons to be learned from this decision, including the following:

DON'T: Don't retaliate against an employee or a former employee. If an employee makes a complaint, files a claim or talks to a state or federal investigator, do not retaliate. If a problem employee leaves your business for whatever reason and you are asked for information by an investigator or by a potential future employer, report truthfully, but do not go out of your way to cause problems for the former employee.

DON'T: Don't forget to do what you say you are going to do. If you enter into a settlement agreement with a former employee, perform your obligations under the agreement. If a termination is to be treated as a resignation, then do so. If you promise to give only a neutral evaluation, then do so. And make sure everyone in your organization does the same.

DON'T: Don't forget to make appropriate changes to a former employee's personnel records necessary to comply with your agreement.

DO: Do use a comprehensive settlement agreement when you are terminating employees. This single practice can prevent a lot of problems.

DO: Do include an arbitration provision in your settlement agreements requiring that any future dispute between the parties be resolved by mediation and arbitration rather than litigation.

DO: Do put safeguards in place so that when questions arise regarding certain former employees, the right person in your organization is notified. This can prevent innocent mistakes from becoming federal cases.

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