• Releases for Severance Benefits: Make Them Work for You
  • May 5, 2003
  • Law Firms: Buchanan Ingersoll, Professional Corporation - New York Office ; Buchanan Ingersoll, Professional Corporation - Philadelphia Office
  • Severance benefits are just one of the many factors considered by companies when terminating an employee or planning a broader reduction of their workforce. In exchange for severance, employers will often require their employees to sign release agreements waiving their rights to pursue legal claims against the employer. In light of the recent increase in employment related litigation, it rarely makes sense for an employer to provide significant severance benefits without obtaining such a release. In fact, the only reason some employers provide severance benefits is to acquire a release.

    Generally, for a release to be enforceable, at the very least the employee must be paid some consideration -- something he or she is not otherwise entitled to receive. Typically that is severance. However, employers that seek to obtain releases from employees over age forty that waive claims arising under the federal Age Discrimination in Employment Act (ADEA) must comply with the Older Workers Benefit Protection Act (OWBPA). In fact, earlier this year the Equal Employment Opportunity Commission (EEOC) issued new regulations on OWBPA which employers must take into account every time they ask an employee to waive an ADEA claim.

    Highlighting the EEOC's commitment to protecting older workers, the EEOC recently prevailed against a large international information technology company, claiming the waivers sought by the technology company in exchange for severance during its reduction in force did not comply with the ADEA and therefore violated older workers' rights. See Commonwealth of Massachusetts v. Bull HN Information Systems, Inc., 143 F.Supp.2d 134 (May 29, 2001).

    Accordingly, employers that seek waivers of ADEA claims from employees should make sure the releases are valid under OWBPA. It is often advisable to do so even if age claims are not involved. Some of the provisions in the EEOC regulations are:

    • The ADEA waiver must be knowing and voluntary.

    • Individual employees must be given 21 days to consider the release agreement and 7 days thereafter to revoke. If the termination is part of a group termination program or an early retirement plan, employees must be given at least 45 days to consider the terms of the release agreement and there are additional disclosure requirements.

    • Employees must receive consideration for the release.

    • Employers should not require employees to involuntarily return (tender back) severance payments as a condition to filing an age discrimination claim.

    Compliance with all these items may not be necessary for every release in every circumstance. The decision of whether or not to seek a release from a terminated employee in exchange for severance is one that should always be made with knowledge of the risks involved by proceeding in a particular way.