With an ever-increasing amount of corporate layoffs and reorganizations forcing employees out of their jobs, employers often offer “severance” or termination packages to departing employees providing pay or other benefits upon termination in exchange for certain employee promises. These promises typically consist of a release or “waiver” of liability for all claims connected with the employment relationship, including discrimination claims. These agreements may also ask the employee to give up other rights.
Severance Agreement Basics
Both, employees and employers, face questions regarding severance agreements. Departing employees considering a “severance package” face the decision of what rights should they be giving up and what rights do they retain upon signature. Employers are mostly concerned with the content and conditions of the agreement to ensure its validity and protection against future employee action, such as discrimination lawsuits or engagement in competition.
An important factor in a valid severance contract is that the employer must offer a benefit over what the employee would normally receive if he or she stayed employed (e.g., the employer may not require an employee to sign a release as a condition to receive his or her final pay for hours worked.) The employer is also required to follow specific rules concerning the drafting and execution of the agreement.
Applicable Laws
Florida law does not require an employer to provide severance pay upon employee termination unless this is specified under an employment contract or collective bargaining agreement. However, even when there is no such arrangement, employers often wish to present discharged employees a valid severance offer, particularly when there are multiple layoffs as part of a reduction in force.
The content and conditions in an employee severance agreement can raise a number of issues, most of them surrounding the liability waiver. Waivers typically seek to release discrimination claims under the civil rights laws enforced by the Equal Employment Opportunity Commission (EEOC), including The Age Discrimination in Employment Act (ADEA), Title VII, the Americans with Disabilities Act (ADA), and the Equal Pay Act (EPA).
When the departing employee is over 40 years old the provisions of the federal Older Workers Benefits Protection Act (OWBPA) apply. The OWBPA, which is part of the Age Discrimination in Employment Act (ADEA), requires employers to follow specific provisions to secure a valid release from any age discrimination employee claims.
Under OWBPA, the employee release must be “knowing and voluntary” and satisfy specific requirements, including the following:
- It must be written in a manner that can be clearly understood. It must use plain, clear language and be written in a manner that an average person would understand.
- It must be made in exchange for consideration in addition to anything of value to which the employee is already entitled.
- It must specifically refer to rights or claims arising under the Age Discrimination in Employment Act (ADEA) (which must be spelled out by name).
- It must advise the employee in writing to consult an attorney before signing the release.
- It must not require the employee to waive rights or claims arising after the date the employee signs the release (e.g., claims arising under the Family Medical Leave Act (FMLA) and whistleblower retaliation claims, among others.).
In addition, OWBPA requires that a strict timeline be followed and included in the agreement. The employer must let the employee know that:
- The employee has 21 days to consider the agreement (or 45 days if the waiver is requested as a separation incentive offered to a group or class of employees); and
- The employee can cancel the agreement within seven days of signature.
OWBPA imposes additional requirements when two or more employees over 40 years old are discharged.
Under other laws, such as Title VII, the ADA, or the EPA, the waiver validity is defined by case law. The factors courts look at to determine whether an employee knowingly and voluntarily waived his or her discrimination claims include contract principles, as well as the totality of the circumstances:
- Whether the language in the waiver is clear;
- Whether it was written in a manner that was clear and specific enough for the employee to understand based on his or her education and business experience;
- Whether it was induced by fraud, duress, undue influence, or other improper conduct by the employer;
- Whether the employee had enough time to read and think about the advantages and disadvantages of the agreement before signing it;
- Whether the employee consulted with an attorney or was encouraged or discouraged by the employer from doing so;
- Whether the employee had any input in negotiating the terms of the agreement; and
- Whether the employer offered the employee consideration (e.g., severance pay, additional benefits) that exceeded what the employee already was entitled to by law or contract and the employee accepted the offered consideration.
Must not Prevent Federal Government Investigation
In addition to the above requirements, the employer must state in the severance agreement that the employee does not give up the right to file a discrimination claim with the U.S. Equal Employment Opportunity Commission (EEOC). Anything else in the agreement preventing the employee from assisting a federal government discrimination investigation (e.g., confidentiality, general release and non-disparagement clauses, among others) will likely render the agreement invalid.
Also, any fraud, undue influence, or other improper conduct to coerce the employee to sign a severance agreement waiver, or if the waiver contains a material mistake, omission, or misstatement will invalidate the agreement.
Unemployment Benefits and Liquidated Damages under Florida Law
Under Florida law, it is unlawful for an employer to require an employee to waive his or her rights to receive unemployment benefits. A violation constitutes a misdemeanor in the second degree. In addition, liquidated damages clauses must be carefully drafted in order to be enforceable.
Best Practices
Due to the complexity of issues involved in severance agreements, it is in the employer’s and the employee’s best interest to engage the assistance of an attorney in evaluating a severance agreement situation, whether it involves drafting a valid agreement, reviewing it, negotiating it, or assisting in a contract breach, reporting, or compliance matter.
Whether you are an employer or employee, the Orlando employment law attorneys of Burruezo & Burruezo can assist you in assessing a severance agreement situation and offer competent legal representation, if necessary. Click here to contact an attorney now.