Using Severance Agreements in Touchy Terminations

Little can rank above an individual’s pride in her or his livelihood.  No matter how much a failing, insubordinate worker might deserve it, it is thus imperative that management handle a termination free of any urge to finger-point or otherwise antagonize. A humiliating, yet justified firing can and often does fuel an ex-employee’s determination to “get even” through court action.

Severance agreements can play an important, even deciding role in achieving the desired smooth transition. In the course of a termination, the manager offers some amount of additional “severance” pay or other benefits (e.g., forgiveness of an employee’s debt) above all earned wages and accrued vacation pay.  In exchange, the worker signs a thorough release and waiver of all claims, real or imagined, known or unknown. “All claims” can and should include any accusation for wrongful termination, discrimination, harassment, retaliation, breach of contract, and disputed wage payments.

There are special rules under the federal Age Discrimination in Employment Act (ADEA) and the Older Workers Protection Act (OWPA) for such an agreement between a company with 20 or more employees and a worker aged 40 or older.  In order to protect the employer against ADEA/OWPA discrimination claims, (1) the employee must have up to 21 days to consider and sign the waiver, and if desired, to have it reviewed by an attorney; and (2) even after accepting, that employee must have another seven days to change his or her mind and rescind the agreement.

Even where those special terms are not required, best practice is to provide the employee a reasonable time to weigh the offer, for example three calendar or business days.

Where presented forthrightly and with respect, most departing workers will accept the offer, often without taking the allotted 21 days or other specified interval to think it over.

Employers can approach the seven-day rescission requirement under the ADEA and OWPA in different ways.  An agreement can provide the severance amount immediately on the employee’s signing the agreement. Others specify payment on the passage of the seven days.

Take Aways:

• Adequately document employee performance, including significant incidents of insubordination, production errors or disruption;
• Professionally respond to employee concerns over workplace conditions, promptly documenting investigations and resolution;
• Provide effective manager training on proper attitude and procedure for terminations;
• Adopt sound policy for conditions suitable for severance offers and legally compliant template severance agreements; and
• Consult with qualified employment counsel for guidance on potentially contentious terminations.

See also,

• Nailing Goodbye – Employee Terminations Dos and Don’ts (September 15, 2021)
• Good Workplace Policy is Boss – Our Template Handbook & Forms for 2021 (May 28, 2021)
• Tracking Down Discrimination – EEOC 2020 Report Retaliation, Disability Claims Predominate (April 16, 2021)
• Workplace Discrimination Prevention – California’s Fair Employment and Housing Act, A History (March 26,2021)
• Employee Terminations – Firing Low-Performing Workers While Limiting Repercussions (April 20, 2018)

For more information, please contact one of our attorneys, Tim Bowles, Cindy Bamforth, or Helena Kobrin.

Tim Bowles
September 24, 2021