The use of severance agreements has increased over the past several years, particularly with the recent economic downturn.
In some cases of involuntary separation, employers choose to enter into severance agreements with employees to avoid potential litigation. The idea behind the severance agreement is that an employee receives something of value to them which they would not otherwise be entitled to (usually additional compensation or benefits). In return, the employee makes a written agreement not to sue his/her employer.
Severance agreements not right in every case
While the premise of a severance agreement may sound like a viable option if you have an employee you are considering terminating, they are not right in every situation. There are legal considerations you should review before using such an agreement:
- The employee must receive something in exchange for the release (typically, a sum of money) and that offering must be included in the release. Keep in mind that if you normally offer a severance package to employees that do not sign a release, you must offer something additional to employees that do sign.
- An employee cannot be forced to sign a severance agreement. As an employer, all you can do is offer the agreement. A court will not enforce the release if they find that the employee was coerced.
- You must be clear about the rights the employee is waiving in the agreement.
EEOC warns that it may interfere with rights
The Equal Employment Opportunity Commission has argued that, in some cases, a severance agreement unlawfully interferes with the employee’s ability to communicate with the EEOC regarding potential discrimination.
Also, the age of the employee can impact the content and potential risk of using the severance agreement. If the employee is age 40 or older, they receive special protections under the Older Workers’ Benefits Protection Act. This agreement must contain specific language regarding legal counsel and there is a mandatory allotment of time for the agreement to be signed and revoked by the employee.
BCN Services can assist you in determining whether or not a severance agreement should be used for your particular employee situation as well as drafting and execution of the agreement. If you have questions, please contact us at 1-800-891-9911 or contact us here.
Alicia Jester, Manager Benefits and Payroll