Severance Agreements
Across the nation, layoffs, and consequently severance agreements, are become a normal part of doing business. A severance agreement is a contract between an employer and employee that states the employee will waive certain rights in order to receive additional compensation from the employer. The additional compensation may include a large one-time payment, continued health benefits, continued salary payments, a reference letter, and other options. When you have been laid off, you may have valid concerns about your severance package. Consulting an attorney can help you ensure that your future employment prospects and your rights are fully protected.
Examining Employer Severance Packages
Employers often use severance agreements when an employee has served the employer well, but is being laid-off due to reorganization; or when the employee has a legitimate claim against the employer and the employer wants to offer the employee compensation for their cooperation in not filing suit against the company. In the case of the latter, an employee should always consider what led to his/her termination in order to evaluate whether the claims, if any, he/she has against the employer are more valuable than the severance benefits being offered.
Non-Competition Clauses
Employers who offer severance agreements may also be interested in protecting trade secrets and will often add a non-competition clause to the waiver. It is very important to fully understand the scope of a non-competition clause or any added clause to the waiver that places future work restrictions on the employee (i.e. soliciting workers away from the employer for a period of time, disclosing the employer’s proprietary information, and not working for a competing company for a period of time). Any added provisions to a severance agreement could have a detrimental affect on the employee’s future ability to earn a living.
The Age Discrimination in Employment Act (ADEA)
The ADEA protects employees 40 years old or older from discrimination in the workplace on the basis of age. According to the ADEA a waiver is a legal agreement between an employer and employee in which the employee waives the right to pursue an age discrimination claim against the employer in exchange for receiving severance pay, early retirement benefits, etc. Age discrimination is a real phenomenon, and it doesn’t have to be tolerated. More information on age discrimination is available on our Age Discrimination page.
The Older Workers Benefit Protection Act
The OWBPA is an amendment to the ADEA that makes it illegal for an employer to use an employee’s age to discriminate in benefits or for a company to target older workers for layoffs. Additionally, the OWBPA limits the manner in which an employee (40 years old or older) may waive his/her protections under the ADEA. The OWBPA states that an individual may not waive any right or claim under the ADEA unless the waiver is understood and voluntary. Any severance agreement that does not follow the specific guidelines of the OWBPA is considered invalid.
OWBPA Guidelines
A release executed by an employee as part of a severance program involving two or more employees (if at least one employee in the program is 40 years old or older) is not considered valid unless at a minimum:
- The employee was granted a period of at least 21 days (45 days in an instance of mass-termination) within which to consider the agreement.
- The waiver is part of an understandable written agreement that specifically refers to rights under the ADEA.
- The waiver must be accompanied by consideration (i.e. money) in addition to severance or other benefits to which the employee is already entitled to receive.
- The waiver must advise the individual in writing to consult with an attorney before executing the waiver.
- The waiver must also state that the offer remains revocable for at least 7 days after the date of signature.
Tender Back Clauses
In the past, employers would often require an employee to return, or “tender back”, compensation from a severance agreement if the employee brings suit against their employer. The EEOC has recently has stated that severance agreements containing a tender back clause are invalid. The new EEOC regulations also state that an employer cannot include a clause that awards damages, attorney’s fees, and/or other costs when a terminated employee files a lawsuit against the employer.
Contact a Lawyer about Your Severance Agreement
If you’d like to discuss your severance package with an experienced attorney, please fill out a contact form or phone our Minneapolis or Chicago office listed below. We would be happy to help you review your situation with a free initial consultation.