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Advice, please: How should we implement our first severance pay packages?

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in Discrimination and Harassment,Firing,Human Resources

Q. Due to economic conditions, we are planning to let go three employees from our 30-person work force. We are planning to provide these employees with four weeks’ pay if they sign a release of all claims. We have never provided severance pay before and have no policies governing the practice. What advice can you give us?

A.
Employers must exercise extreme caution when obtaining and enforcing such releases. In order for a release to be valid, it must be “knowing and voluntary.” For releases of age discrimination claims arising under the Age Discrimination in Employment Act (ADEA), the Older Workers’ Benefit Protection Act (OWBPA) sets forth explicit language that must be included in the release, including advice to consult with an attorney, 21 days to consider the agreement and a seven-day rescission period.

If the waiver is requested in connection with an exit incentive offered to a group of employees, the requirements of the OWBPA are even more stringent. The language of the release must exactly comply with the technical requirements of the OWBPA to be enforceable; substantial compliance is not sufficient. An employee who signs an invalid release is not required to tender back any severance payments in order to pursue an ADEA claim. The employee can keep the money and file a lawsuit against the employer.

The EEOC, the federal agency charged with enforcing the federal statutes that prohibit workplace discrimination, has promulgated regulations that prohibit the waiver of an employee’s right to file a charge of discrimination with the EEOC. Courts routinely find such waivers to be unenforceable because they work against public policy interests.

The EEOC goes even further, however. It takes the position that clauses requiring employees to waive their rights to file charges of discrimination with the EEOC have a “chilling effect” on employees’ pursuit of such rights and are therefore “facially retaliatory.”

The negotiation of severance agreements is a situation in which a penny saved is not a penny earned. Make sure to consult with your own employment counsel before proceeding.

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