What You Need to Know About Severance Packages

During these economic times, many companies big and small, are facing the hard reality of layoffs. As hard as it is for companies, it is even harder for employees. Faced with no job and a bare economy, accepting a severance package might seem like to best choice. But before signing anything, it is important to understand the basics of the severance package and the potential rights that might be relinquished in the process.

(1) Time to Consider the Severance Package: A prevalent misconception is that all employees are entitled to twenty-one (21) days to review severance package offers. Unfortunately, that is not the case. In the case where the employer is only offering a severance package to one employee, and that employee is under the age of forty (40), there is no specific time to review the documents that is required by law. However, as the severance package must be made “knowingly and voluntarily,” that allows the employee some time to consider the severance agreement. However, there is no statutory minimum.

If, however, the employee being offered the severance agreement is forty (40) years or older, they are protected by the Age Discrimination in Employment Act (“ADEA”) of the Older Workers Benefit Protection Act (“OWBPA”). By law, when only one employee is offered the severance agreement and a release of ADEA claims is included, the employer must provide the employee with twenty-one (21) days to review and consider the proposed severance agreement. Moreover, if the employer and employee engage in negotiations, the consideration period commences on the date of the employer’s final offer.

If more than one employee is terminated at or around the same time, it is considered a “group layoff.” By law, when a severance agreement is offered as part of a group layoff, and a single employee is over the age of forty (40), and a release of ADEA claims is included, then every employee regardless of age must be given forty-five (45) days to consider the agreement.

(2) Release of Claims: Most severance agreements contain a release of a variety of claims, including claims you may have based upon your age, race, national origin, gender, disability, relegation, among others. It may also include a release of all claims, whether known to you or not at the signing of the agreement. However, the United States Equal Employment Opportunities Commission (“EEOC”) has held that, although the severance agreement may restrict the employee’s ability to file a lawsuit, the release cannot restrict the rights of an employee to file a charge of discrimination with the EEOC, nor can the severance agreement limit an employee’s right to testify, assist or participate in an investigation, hearing or other proceeding conducted by the EEOC. Furthermore, the EEOC has declared that an agreement cannot waive an employee’s rights regarding acts of discrimination that occur after the signing of the agreement.

(3) Seven (7) Day Revocation Period: When a severance agreement contains an ADEA release of claims, by law, the employer must provide you with seven (7) days to revoke the agreement after signing it. This seven (7) day window cannot be waived or changed by either party.

(4) Ability to Consult with an Attorney: Severance packages generally contain more than just the release of ADEA claims, but also claims under Title VII of the Civil Rights Act, Americans with Disabilities Act, Employee Retirement Income Security Act, retaliation, whistle blowing, breach of contract, invasion of privacy, among others. Given the breadth of the claims released, before the signing of a severance agreement, it is extremely important to consult with an attorney prior to its execution. Moreover, when the severance agreement contains a release, the agreement must specifically advise the employee to seek the advice of any attorney. Faced with financial distress because of the layoff, you may not be able to think objectively concerning your rights and options. It is best to consult an attorney.

(5) Consideration: Consideration is required for every agreement. That means that an employee must receive something of value in exchange for giving up certain rights. That “something of value” must be above and beyond what the employee would otherwise be entitled to.

(6) Ability to Negotiate: Despite the “take it or leave it” undertones of an employer, generally, many employers will negotiation severance on some level. Given that, there is also a risk that an employer will revoke the offer of severance if negotiation is attempted. Your chances of negotiating successfully increase if there is a claim that your particular severance package is not fair in light of your industry, your position, or the circumstances of your employment. Additionally, the negotiations do not need to focus on the dollar amount connected with the severance agreement. Employers might be willing to extend insurance coverage, disability benefits, or other items.

(7) Gather All Information: Before deciding to accept, negotiate, or reject a severance package, it is important to understand completely what is being offered to you, including compensation, benefits and insurance. If you are in an industry that provides for deferred stock options or bonus, it is important to understand whether you would still be entitled to it. You should gather information concerning your employer’s welfare plans, health plans, vacation and sick leave policies, as well as any structured bonus plans or stock options. If the severance package is only offering you what you would be entitled to, the agreement may lack adequate consideration.

(8) Restrictive Covenants: Many employers will place some kind of restrictive covenant into the severance package. These range from confidentiality clauses, to non- disclosure agreements, to non-solicitation agreement, to non-compete agreements. Therefore, it is important to understand how signing the severance agreement may restrict your ability to find new employment.

Before you sign a severance agreement, it is important to fully understand your rights and the consequences of accepting the offer. The attorneys at Maya Murphy, P.C., have years of experience in all sectors of employment law. If you have any questions relating to your severance agreement, please contact Leigh H. Ryan, Esq. by phone at (203) 221-3100 or via e-mail at LRyan@Mayalaw.com.

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