Often, when an employee is terminated from their job, their employer will present them with an agreement that provides compensation in exchange for the employee’s promise not to sue their employer. These agreements may be referred to as severance agreements, severance contracts, separation agreements, or exit contracts. Such agreements may also contain restrictive covenants that can prohibit or limit an employee from being able to continue working in the same industry after their employment ends.
Enforceability of Severance Agreements
In order for a release of liability in a severance agreement to be enforceable, employees must receive something called “consideration.” Consideration can be set forth in the form of money, benefits, or both; and is offered to an employee in exchange for their waiving their legal right to sue their employer. The agreement must also be reasonable in scope or a court might strike it down as void.
If an employer coerces an employee into signing one of these agreements, such as by threatening to withhold lawfully earned pay, then the agreement is likely unenforceable. Employees should be given ample time to consult a lawyer regarding any severance agreement.
In addition, these agreements must contain certain specific provisions to prevent claims under various statutes in order to be enforceable. For example, agreements that violate discrimination laws are void.
Severance Agreements and Discrimination
Severance agreements must comply with federal and state anti-discrimination laws. For example, sometimes an employer’s action, such as a Reduction in Force (RIF), may be used as a front for discriminatory practices. A experienced employment lawyer has experience analyzing employer actions such as RIFs to determine whether an employer is trying to conceal a discriminatory practice. If you are unsure about the terms of a severance agreement, seek qualified legal counsel immediately.
Special Rights Afforded to Older Workers
Workers over the age of 40 should be aware that a federal law known as the Older Workers Benefit Protection Act (OWBPA) protects them. This law dictates what must be included in a severance package, and the employer is required to give the worker a longer period of time to review the release. The employer is also required to advise the employee in writing to consult with an employment attorney. If a worker waives his or her rights under the Age Discrimination in Employment Act by signing a severance agreement, they must be given at least 21 days to consult an attorney.
Some companies have “loyalty” initiatives designed for long-term employees which often guarantee a certain amount of money be paid when they depart. Pharmaceutical companies in particular are known to adopt this practice. Often these programs do not distinguish between “for cause” termination, such as misconduct, and other types of termination. If an employee is enrolled in one of these loyalty programs, they should consult with an experienced employment lawyer to protect their rights and interests.