Severance agreements: Beware new legal risks

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in Employment Law,Human Resources

If your severance packages to departing workers include a waiver of future potential lawsuits, that’s a smart strategy. But be aware that small mistakes with severance packages—especially for older workers—can lead to big problems in court. Here are two recent lessons learned in the courts:

Lesson 1: Give employees time

Following a dispute with a lab technician, Columbia University in New York offered a deal: The worker would resign in exchange for a small severance payment and compensation for unused vacation leave.

The university gave him an hour to consider the offer, which had been negotiated with the help of a local union rep. The employee accepted the terms, but later regretted signing. He sued, saying he’d signed the severance under duress. The court let the case go to trial, noting the short time and the fact that he didn’t have access to an attorney. (Mandavia v. Columbia University)

Note: To comply with age bias laws, you should give employees at least 21 days to consider severance packages that include waivers of age discrimination lawsuits. 

Lesson 2: Sweeten the deal

Another requirement for severance waivers of age discrimination claims: They’re only valid if the agreement gives the departing worker more money (or some other benefit) than they would otherwise receive if they didn’t sign the deal.

That’s why any severance packages must be crystal clear about the basis of extra payments—and what the employee would get if he or she didn’t sign.  

Example: When Charles was laid off from Motorola, he signed a severance agreement that gave him $80,000 in exchange for promising not to sue. He sued anyway, arguing that it wasn’t clear whether he would have received the same amount even if he didn’t sign the lawsuit waiver.

The court said the case could go forward. Motorola will have to show how the payment compares to what Charles would have received if he didn’t sign. (Lamberti v. Motorola Solutions)

Final tip: Severance agreements aren’t do-it-yourself projects. Get your attorney’s help, especially if the employees involved are over age 40.

Age discrimination: 6 parts of a legal severance waiver

Severance packages must conform to the Age Discrimination in Em­­ploy­­ment Act (ADEA) and its companion law, the Older Workers Ben­­efit Protection Act (OWBPA). Together, the laws dictate how you can legally ask employees to waive their rights to sue. When asking employees to waive their rights to age discrimination lawsuits, the waiver must:

  1. Be in writing and be understandable.
  2. Specifically refer to the ADEA rights or claims.
  3. Not waive rights or claims that may arise in the future.
  4. Be provided in exchange for other consideration.
  5. Advise the person in writing to consult an attorney before signing.
  6. Provide the person at least 21 days to consider the agreement and at least seven days to revoke the agreement after signing it.

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