Severance Agreements Provide Significant Benefits – If Drafted Correctly

Severance Agreements are commonplace due to the tremendous benefits they provide.  A severance agreement, if drafted properly, provides a release against future lawsuits or claims by employees.  This can save a company thousands of dollars that might otherwise have been spent defending even a claim that has no merit.  Any company that has experienced employment litigation knows the value of avoiding such claims.

The key to a severance agreement is proper drafting and the courts are not making this task any easier.  The courts have recently affirmed that an individual cannot release a claim under the Family Medical Leave Act without approval of the Secretary of Labor and this has been a longstanding rule under the Fair Labor Standards Act.  A few years ago, the Equal Employment Opportunity Commission (EEOC) also argued that an individual cannot agree not to file a charge of discrimination under Title VII, the Age Discrimination in Employment Act (ADEA) or Americans with Disability Act.  So, why consider severance agreements?

The answer is that there are plenty of other claims that can be released including any federal or state lawsuits on the very same statutes mentioned above.  Further, an individual can agree that if an EEOC charge is filed on his/her behalf, the individual will not take any monetary relief from such charge.  This takes away the incentive for an individual to file a charge.

There are other federal requirements under the ADEA and Older Worker’s Benefit Protection  ACt that govern releases.  Failure to follow these guidelines will render the release invalid.  These regulations provide that a release/waiver must:

• be knowing and voluntary
• be written in a manner that is understood by the average individual
• specifically refer to the ADEA
• the individual does not waive rights or claims that may arise after the date of the release
• there is valid consideration for the release
• the individual is advised in writing to consult with an attorney prior to signing the agreement
• the individual is given a period of at least 21 days to consider the agreement or 45 days if the waiver is given to more than one employee
• the agreement provides for a seven day revocation period

If the waiver is given to more than one person, other information must also be provided to the employees.

In addition to what type of benefits to provide an employee, other factors to consider for inclusion are whether a company will contest unemployment benefits, whether the company will refuse to rehire the employee, whether a non-disparagement clause is needed and what type of reference the company will give.  Although consistency is a key to employment policies, severance agreements may need to be tailored for each employee and situation.