101/201 Practice Series: The EEOC Offers Guidance on Severance Agreements - Young Lawyers Division

By Michelle D. Craig

"Understanding Waivers of Discrimination Claims in Employee Severance Agreements," recently published by the Equal Employment Opportunity Commission ("EEOC"), offers employers insight on the EEOC's position on the requirements for waivers of discrimination claims included in severance agreements under the ADA, Title VII, EPA, and ADEA. Depending on the type of layoff--a single employee layoff, a layoff of employees over 40, or group layoffs--specific provisions are required to make the agreement enforceable.

The EEOC defines a severance agreement as a contract or legal agreement, between an employer and an employee that specifies the terms of an employment termination, such as a layoff. The general rules for severance agreements and releases of discrimination claims are simple: (a) the agreement must be supported by consideration;1 (b) the agreement cannot require the employee to waive future rights;2 (c) the agreement cannot waive certain existing rights;3 (d) the waiver must be "knowing and voluntary;"4 and (e) the agreement must comply with applicable state and federal laws.

For severance agreements for employees who are over 40, the ADEA contains more stringent requirements than those under other anti-discrimination laws. In addition to the above, the agreement must contain the following:

  1. An understandable waiver - This waiver must be devoid of technical jargon and long, complex sentences, not misleading, and not exaggerate benefits or minimize limitations.
  2. A specific reference must be made to the ADEA - The Act should be spelled out by name.
  3. The agreement must advise the employee in writing to consult an attorney - It is insufficient for an agreement to suggest an employee consult with an attorney; it must specifically advise the employee to do so.
  4. The employee must have 21 days from the date of the employer's final offer to accept the severance agreement.
  5. The employer must allow a seven-day revocation period - This period cannot be changed or waived by either party for any reason.
  6. The agreement must not include a waiver of future rights - It cannot waive an employee's rights regarding acts of discrimination that occur after the date of signing.
  7. Consideration - The waiver must be supported by adequate consideration.

With regard to severance agreements for employees in group layoffs, additional requirements must be met. Those include the following: (a) a written notice of the layoff; (b) a consideration period of 45 days; (c) written disclosures informing the employees in writing of the "decisional unit" (the group of employees from which the employer chose the laid off employees); (d) the eligibility factors; (e) applicable time limits; and (f) the job titles and ages of all individuals eligible or selected, and not eligible and not selected for the program. According to the EEOC, the above are the minimum requirements for a valid age discrimination release.

In addition to the much needed guidance above, some of the publication remains unclear. For instance, the EEOC states that any provision that attempts to limit an employee's right to file a charge or participate in an EEOC investigation is invalid and unenforceable. However, it does not specify whether the inclusion of such a provision invalidates that particular clause or whether it renders the entire agreement unenforceable.
 
The publication also includes an appendix with a checklist for "What to Do When Your Employer Offers You a Severance Agreement." The checklist includes guidance to the employee regarding deadlines, attorney fees, the exchanges being made, and the prohibition against the release of nonwaivable rights. This checklist is an excellent source of information for an employee as well as employers.

Despite following these guidelines, an employer's release may still be invalidated if the employer uses fraud, undue influence, or other improper conduct to coerce the employee to sign it, or if it contains a material mistake, omission, or misstatement. Moreover, the EEOC's publication reaffirms its declaration that an employer may not renege on promises contained in a release or impose other penalties after an employee has filed a lawsuit challenging the validity of a waiver, particularly in an age discrimination claim.

While there are many existing regulations, compliance requirements, and specific workplace issues that this publication does not address, it is a start that can be extremely useful for employers. In addition to reviewing and familiarizing themselves with the document, employers should also (a) ensure that their releases are carefully crafted to comply with all applicable laws; (b) ensure the releases are not susceptible to invalidation because of the inclusion of unenforceable waivers of employment discrimination claims; (c) ensure that the disclosures are specific and accurate for group terminations; (d) ensure that the releases comply with OWBPA; and (e) ensure that counsel is consulted to determine the legality of any contemplated severance agreements.


1Something of value in addition to any of the employee's existing entitlements such as a lump sum payment or periodic payment of the employee's salary for a specified period of time after termination.
2 Cannot waive future claims.
3 The agreement may not restrict an employee's right to file a charge of discrimination with the EEOC and cannot limit an employee's right to testify, assist or participate in an EEOC proceeding.
4 Under Title VII, ADA or EPA, most courts will consider the following to determine whether the employee knowingly and voluntarily waived his or her rights: whether the agreement was written clearly and specifically enough for the employee to understand; whether it was induced by improper conduct by the employer; whether the employee had enough time to read and consider it before signing it; whether the employee consulted an attorney or was encouraged or discouraged by the employer from doing so; whether the employee had input into the terms of the agreement; and whether the employer offered the employee consideration that was accepted by the employee

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About the Author

Michelle Craig is a Labor and Employment attorney with the law firm of Adams and Reese LLP. She can be reached at (504)585-0441 or michelle.craig@arlaw.com for questions regarding this article.

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