There was a time when conscientious employers provided severance pay to help employees survive layoffs. But, these days, employers who provide severance pay at all are more likely to do so as a “bribe” of sorts, to encourage departing employees to sign severance agreements that waive their rights to sue the employers.
For layoffs, the most common waiver among severance agreements — sometimes called separation or termination agreements — relinquishes an employee’s right to sue his or her employer for wrongful termination, particularly under a discrimination law.
Subsequently, departing employees often want to know “Is a severance agreement legal?” The answer is likely to be yes, if the employees have knowingly and voluntarily consented to the waiver of rights within their severance agreements.
But, what constitutes “knowingly and voluntarily” depends on how effectively employers have written severance agreements and how they went about “encouraging” departing employees to sign them.
As a result, an employee may challenge the legality of his or her severance agreement in court, in an attempt to sue his or her former employer for discriminatory wrongful termination despite that he or she agreed not to in writing.
A court will likely consider several factors to determine whether or not the employee signed a severance agreement knowingly and voluntarily, and, subsequently, whether the severance agreement is “legal” or null and void. If null and void, the court will allow the lawsuit to proceed; if legal, the court will dismiss the lawsuit.
Which factors a court will consider to determine whether or not a severance agreement is legal, depend on which discrimination law is involved in such a lawsuit. For example, if an employee filed his or her lawsuit under the Age Discrimination in Employment Act (ADEA), it was amended by the Older Workers Benefit Protection Act (OWBPA) to establish specific requirements for a knowing and voluntary waiver of ADEA claims.
To be legal (enforceable) under the amended ADEA, a severance agreement waiver must:
- Be written in a manner that can be clearly understood
- Specifically refer to rights or claims arising under the ADEA
- Advise the employee to consult an attorney before accepting the agreement
- Provide the employee with at least 21 days to consider the offer
- Give an employee seven days to revoke his or her signature
- Not include rights and claims that may arise after the date on which the waiver is executed
- Be supported by consideration (e.g., severance pay) in addition to that which the employee is already entitled
That’s according to the Equal Employment Opportunity Commission (EEOC), the government agency tasked with enforcing federal discrimination laws. Because the enforceability of severance agreements had become more of an issue thanks to record-level mass layoffs in 2009, the EEOC published guidelines regarding what makes severance agreements legal or illegal under the discrimination laws it enforces.
To read the EEOC guidelines, see Understanding Waivers of Discrimination Claims in Employee Severance Agreements. Consult an attorney for legal advice pertaining to your particular severance agreement.