A severance agreement is a contract, or legal agreement, between an employer and an employee that specifies the terms of an employment termination, such as a layoff. Sometimes this agreement is called a “separation” or “termination” agreement or “separation agreement general release and covenant not to sue.” Like any contract, a severance agreement must be supported by “consideration.” Consideration is something of value to which a person is not already entitled that is given in exchange for an agreement to do, or refrain from doing, something.
The consideration offered for the waiver of the right to sue cannot simply be a pension benefit or payment for earned vacation or sick leave to which the employee is already entitled but, rather, must be something of value in addition to any of the employee’s existing entitlements. An example of consideration would be a lump sum payment of a percentage of the employee’s annual salary or periodic payments of the employee’s salary for a specified period of time after termination. The employee’s signature and retention of the consideration generally indicates acceptance of the terms of the agreement.
Federal law, the OWBPA, establishes specific requirements for a “knowing and voluntary” release of ADEA claims to guarantee that an employee has every opportunity to make an informed choice whether or not to sign the waiver. There are additional disclosure requirements under the statute when waivers are requested from a group or class of employees. Even when a waiver complies with requirements, a waiver of age claims, like waivers of Title VII and other discrimination claims, will be invalid and unenforceable if an employer used fraud, undue influence, or other improper conduct to coerce the employee to sign it, or if it contains a material mistake, omission, or misstatement.
When employers decide to reduce their workforce by laying off or terminating a group of employees, they usually do so pursuant to two types of programs: “exit incentive programs” and “other employment termination programs.” When a waiver is offered to employees in connection with one of these types of programs, an employer must provide enough information about the factors it used in making selections to allow employees who were laid off to determine whether older employees were terminated while younger ones were retained. Even if you are parting amicably with your employer, make certain to ask for advice about whether you should sign it, whether the terms are reasonable, and whether you should ask your employer to change any of the terms. Make sure you understand what you are giving up in exchange for severance pay or benefits. Your employer has its own attorneys and human resource department working against you. You need both legal AND human resources experts on your side to assist you in getting the best severance package!
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A leading national provider of employment negotiations advice, the human resource and legal experts at Career Protection® have protected the careers of professionals throughout the United States, Canada, and Europe. Career Protection has negotiated hundreds of employment agreements and severance pay packages. Career Protection’s HR and employment law experts have previously served as Vice Presidents of Human Resources, Directors of Human Resources, Corporate Counsel/Attorneys, or Recruiters for many Fortune 500 and Global Corporations.