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Use new EEOC guidance to review severance agreements

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in Employment Law,Firing,Human Resources

by Laurie Knocke, Esq.

Employers have a new primer from the EEOC on how to craft legally compliant severance agreements. Although Understanding Waivers of Discrimination Claims in Employee Severance Agreements was designed to answer employee questions about severance agreements, it offers useful guidance to employers, too.

Most severance agreements ask employees to waive their right to sue for discrimination in exchange for receiving severance pay.

One of the most important points the EEOC makes: The validity of a severance agreement is determined from the employee’s perspective, not the employer’s.

Can employees understand it?

If an employee challenges a severance agreement in court, the question will not be, “What did the employer intend?” Instead, the court will seek answers to, “What would the average employee reasonably understand from the agreement?”

Employers and their counsel need to review their agreements and make sure they are written clearly. Questions an employer should consider are:

  • Is the agreement unnecessarily complicated?
  • Does it contain too much legalese?
  • Are the sentences short and concise?

The EEOC document, which takes the form of a series of questions and answers, covers several critical issues.

Right to file EEOC complaint

As one would expect from a document drafted by the EEOC, the Q&A prominently discusses the employee’s right to file a charge with the EEOC even if the employee has signed an agreement that purports to release the employer from all claims.

This has been an enforcement focus for the EEOC, as the agency has brought suits against employers that offered severance agreements designed to limit the employee’s right to file a charge, or participate or testify in any investigation conducted by the EEOC.

The Q&A is a good reminder to check your standard agreements to ensure they do not improperly limit those rights.

Rules for continued payments 

The EEOC specifically discusses a case—Butcher v. Gerber Prods. Co.—in which a court ruled that an employer couldn’t cut off severance payments when its employees filed suit challenging the validity of the waiver. Employers should consult their attorneys before they stop making severance payments to someone who has challenged the validity of a release of legal claims.

Employee checklist

The EEOC also provides an employee checklist titled, “What to Do When Your Employer Offers You a Severance Agreement.”

The checklist provides some basic advice to employees, urging them to:

  • Make sure they understand the agreement
  • Check for deadlines
  • Consult an attorney
  • Understand what the agreement asks them to give up.

It also instructs employees to go back to their employer if they do not understand any part of the agreement, or if they would like more time.

It pays for employers to understand this checklist, because the new EEOC guidance may well prompt employees to ask more questions about what a severance agreement means and what its impact will be.

Don’t be afraid to discuss

Employers will need to overcome their reluctance to discuss the impact of their agreement. IBM learned that lesson the hard way in Thomforde v. Int’l Business Machines Corp., a case in which an employee was confused by language in the severance agreement and asked for clarification.

IBM responded that it was not comfortable providing an interpretation and suggested the employee consult with an attorney.

The employee signed the agreement, collected the severance and then brought suit under the ADEA. The 8th Circuit Court of Appeals concluded that the agreement was not written in a manner calculated to be understood by the average employee (as demonstrated in part by the employee’s question) and declared the agreement invalid.

What employers should do

Consequently, employers should make sure their agreements are clear and understandable, and be ready to answer employee questions about the agreement.

While the information and advice contained in the Q&A isn’t necessarily new, it has never before been so easily available to employees. It’s now prominently posted on the EEOC web site. Advice:

  • Assume that resourceful employees will have access to this information.
  • Review your standard severance agreement to ensure it complies with the points discussed in the Q&A. If you spot problems, consult your attorney before raising any issues with employees.


Author: Laurie A. Knocke, a principal at Gray Plant Mooty, concentrates her practice on employment law. Contact her at (612) 632-3218 or laurie.knocke@gpmlaw.com.

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