Separation Agreements Have Their Own Legal Rules

For employers considering layoffs—as several in the tech sector have announced recently—there are multiple factors to consider to reduce exposure to lawsuits. 

For example, employers may wish to examine whether the proposed layoff will have a disparate impact on a protected group. 

But employers can also reduce their exposure to lawsuits by providing severance agreements to employees being laid off. 

Indeed, providing employees with a separation agreement may be one of the best ways for a company to minimize their risk of litigation from the termination of that employee. 

Requirements

But an agreement, it is often said, is only worth the paper it is written on, if it meets certain legal requirements.

Just like pilots review their checklists for takeoffs and landings, it is worth checking your model agreement for each major layoff or termination to see if it meets with basic laws and regulations. 

It is worth checking your model agreement for each major layoff or termination to see if it meets with basic laws and regulations.

So, how can employers be sure their agreements get returned with a signature from the departed employee?

One key is to memorize the Older Workers Benefit Protection Act, part of the federal Age Discrimination in Employment Act.

OWBPA applies to any separation agreement with employees who are over 40 years old. With reductions in force becoming more common, OWBPA again becomes important.

OWBPA

What sorts of things does the OWBPA require?

• The waiver (in other words, the separation agreement) must be written in plain English so the employee can understand the agreement;
• The waiver must specifically mention that the employee is giving up their claims under ADEA;
• The waiver cannot waive rights that arise after the date the release is signed;
• The employee must receive consideration of value (typically money) above anything to which employee is already entitled;
• The employee must be advised to consult with an attorney;
• The employee must have at least 21 days to consider agreement;
• The employee must have seven days to revoke their acceptance of the agreement;
• If the termination is part of a reduction in force or voluntary program that affects two or more employees, employee must be given at least 45 days to consider agreement (instead of 21) and must be given a “release attachment” that has a list by ages and job titles of those selected for the program (or termination) and those who are not.

Obviously, each element of this could be worth a separate article and employers are advised to seek legal counsel before using a model agreement.

There are some state-specific considerations that should be reviewed and there are other provisions (such as confidentiality provisions) that are now subject to regulation as well.

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About the author: Daniel Schwartz is a partner at Shipman & Goodwin and has decades of experience solving complex, employment law problems for companies..  

For more information about Shipman’s manufacturing practice, please contact Alfredo Fernández (860.251.5353; afernandez@goodwin.com).