Do You Understand Your Severance Agreement or Release of Claims?

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Severance is commonly being offered by employers who are reducing their workforce due to the downturn in economy. Various criteria are used to determine which employees or groups of employees to let go.

While the company is not obligated to offer severance package, many employers offer this. The package may comprise of money or benefits in exchange for a release or waiver of liability for all claims the employee may have against the company connected with their employment, any discrimination claims under the Title VII of the Civil Rights Act of 1964 and 1991, Age Discrimination in Employment Act (ADEA), Americans with Disabilities Act (ADA), and the Equal Pay Act (EPA), other Anti-discrimination laws and Federal Employment Laws.

Severance agreement is a legal agreement between you and your employer specifying the terms of your employment separation. The Equal Employment Opportunity Commission has provided guidelines on waivers of claim outlined below.

The company must offer for your consideration something of value that you are not already entitled to in exchange for your agreement to do or refrain from doing something the company wants.

What is in consideration is any money or benefit in addition to what you are already entitled to such as an additional lump sum payment, executive outplacement for a period longer than what is offered to the rest of impacted employees in addition to your Paid Time Off or Vacation hours or Pension Benefits.

Before you sign the agreement, it is important that you review the agreement carefully since you are giving up all your claims against the company.

It is good idea to have a lawyer review the agreement especially if you believe you were subjected to some form of discrimination or have been wrongfully terminated. A lawyer can explain the terms of the legal documents to you and evaluate your legal claims.

How valid is the waiver in severance agreement? Sometimes an employee may sign the severance agreement and may change his or her mind. If the employee files a lawsuit after signing, the court will have to decide whether the waiver is valid.

A waiver is valid if the employee knowingly and voluntarily consents to the waiver. In addition to these, there must be an offer such as additional compensation or benefits in exchange for the employee’s waiver of claims against the company and should not require the employee to waive future rights and compliance with applicable state and federal laws.

To determine whether you knowingly and voluntarily consented to the waiver, ask yourself the following questions:

  • was the agreement written in such a way that it was clear and specific enough for you to understand based on your education and work experience?
  • Did your employer encourage you to sign by fraud, duress, undue influence, or other improper conduct?
  • were you given enough time to read and determine the advantages and disadvantages of what you are giving up? A waiver must at least provide you 21 days to consider the offer.
  • were you clearly advised to consult an attorney?
  • were you encouraged or discouraged by your employer to consult an attorney?
  • did you have any input in negotiating the terms of the agreement?
  • did the employer offer more than what you are legally or contractually entitled to and you accepted the offer?

In addition to the information provided above, there are specific requirements for employees age 40 and over as it relates to waiver of Age Discrimination in Employment Act (ADEA).

Waiver of ADEA must specifically state:

  • that you are waiving your rights and claims arising under ADEA;
  • you are advised to consult with an attorney;
  • you are given at least 21 days to consider the offer; 45 days if there are more than one employee being laid off at the same time
  • you are given 7 days to revoke your signature;
  • it must not include your rights and claims that may arise after the signing of the waiver;
  • you were offered something of value for consideration.

If you believe you were subjected to age discrimination, please get legal advice before you sign your severance agreement or release of claims.

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Severance Agreement

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