How to Create a Severance Agreement: 3 Things to Consider
Posted on September 24, 2014
Policy regarding severance agreements varies from company to company, employee to employee, and year to year. With the constantly changing internal and external forces surrounding severance agreement legality, you need to pull out your most recent severance agreement and talk to your labor and employment counsel to make sure that no changes need to be made to your standard template. The Equal Employment Opportunity Commission (EEOC) has been cracking down on employers across the nation, you never know when you might be next!
Here are three things to keep in mind when drawing up your company’s severance agreements if you wish to ask employees to waive any rights or claims.
Rights must be waived knowingly and voluntarily
Any rights that a departing employee gives up must be waived both knowingly and voluntarily. Courts consider many conditions when determining if a waiver of claims meets those two standards, including the following:
* The clarity and specificity of the language used in the agreement
* The time to consider the agreement
* The recommendation to (or not to) seek counsel from an attorney
* If the employee has input on the terms
* If the employee is offered a monetary consideration beyond what they are contractually owed
Simply put, make sure that any departing employee is fully informed of the conditions of the deal and considers it thoroughly before acting.
The Older Workers’ Benefit Protection Act (OWBPA) should be considered
If the worker is over 40 years old, there are a large number of additional regulations that must be observed under the OWBPA during the severance agreement process. The OWBPA lists seven conditions that must be met for a waiver of claims to be considered valid:
# The waiver must be written in clear and easily understandable
# It has to refer specifically to rights or claims under the Age Discrimination in Employment Act
# The waiver should advise the departing employee to consult an attorney
# The employee must have at least 21 days to consider the offer
# The employee must have 7 days to revoke his or her signature
# A waiver cannot include claims that may arise in the future
# The waiver of claims must offer additional consideration beyond what the employee is already entitled
Not every right is waivable
There are certain rights that you cannot ask someone to give up without invalidating the severance agreement. The biggest non-waivable right is the right to file discrimination charges with the EEOC. If an employee believed they were wrongfully terminated or discriminated against during their employment, they can still file charges with the EEOC, even if they sign a waiver releasing the employer from any claims. Additionally, an employer cannot prohibit an employee from testifying, assisting or participating in an EEOC investigation under the ADEA, Title VII, the ADA or the EPA.
A well-crafted severance agreement can mitigate your company’s risk of tricky legal situations in the future. With the EEOC’s recent crackdown on unlawful or compromising severance agreements, you need to make sure your company is following the rules to a T. For more information on creating effective and legal severance agreements, take a look at the EEOC’s page on Knowing and Voluntary Waivers or consider Paycor’s HR Support Center, a resource for your HR compliance needs.
This content is intended for educational purposes only and should not be considered legal advice.