Added on 12/08/2016 by kalsonlaw
There may come a time in your career when you find yourself in a situation where you are being terminated by your employer. The employer may provide you with a Severance Agreement also called a Separation or Termination Agreement and request that you sign. You may feel pressured and quickly sign a severance agreement just to receive the money being offered without understanding the details and impact to you. By signing, you’ve entered into a legally binding contract that may have waived your rights/forgo any legal claims by you and release the employer from liability by signing the agreement.
In New Jersey there is no law regarding severance. An employer may have a policy or practice regarding severance. It is important to understand what the severance policy is of an employer before you negotiate further. The severance policy may be part of an individual employment contract or may be contained in a manual or handbook. The Older Workers Benefit Protection Act (OWBPA) amended the Age Discrimination in Employment Act of 1967. OWBPA sets the standard for what severance agreements should contain. If an employer let someone go who is in a protected class (in the case of the ADEA, a person over 40) there is always the possibility that litigation may follow. What OWBPA does permit is to condition the payment of severance upon a release and waiver of all claims. OWBPA requires severance “plus” for a valid release. The severance “plus” means more money than which the employee is already entitled to under an individual contract, union contract, handbook or manual.
The following are the legal requirements for a release and waiver to be compliant. First, there must be a written agreement understandable by an individual or average individuals involved. Second, the release must specifically refer to rights arising under the Age Discrimination Employment Act. The release may not waive any claims arising after the date of waiver. The time-frame in some releases states from the beginning of the world to the date signed and not just the period in which the employee was employed. As far as claims arising after the date of the waiver, the example I usually give is that if the employee were to be a patron at Store X and slip and fall or get hit by a truck owned or operated by Store X after the date they signed a release and waiver, those claims would not be waived.
The release must also provide consideration greater than that to which the employee is already entitled pursuant to an existing severance plan. The release must also advise the employee, in writing, to consult an attorney prior to executing the agreement. After all, this is a legal binding agreement or contract. The release must provide an individual employee a period of at least 21 days in which to consider the agreement. If several people are let go at the same time, or a group or class of employees, it must provide 45 days for the employee to consider the agreement. Many times in a group lay-off, the employer will attach, as an exhibit, a list and title of employees retained and let go and their ages to show that it was not a discriminatory lay-off.
Most importantly, the agreement must provide the employee with 7 days following execution of the agreement to change their minds and revoke it. During that period, the agreement is not effective or enforceable. This will affect the time the employee will receive any severance pay as the employer must wait to issue a check until after the revocation period.
The release may not require a waiver that affects the individual rights to file with the EEOC or cooperate with the EEOC in an investigation. However, the employee will be waiving any rights to collect compensation in the EEOC matter if they sign the release and waiver. Most employers do follow the requirements of OWBPA in drafting a release and waiver governing other employment related actions such as discrimination, whistle-blowing or wrongful termination.
In my practice, I have seen numerous occasions where employees are pressured to sign the agreements the same day it is presented. I cannot stress the importance of having the agreements reviewed by an experienced Labor and Employment Law attorney. Many times, there are valid claims you are waiving. These claims can be used to negotiate additional severance for you. In addition, don’t forget that these severance agreements are negotiable. Many times I negotiate things like a mutual non-disparagement clause and to whom reference checks will be directed. It is important to clarify what information will be given in a reference check. Sometimes my clients are seeking a specific letter of reference. Another factor to consider is preserving your right to collect unemployment benefits. The termination must not be for any type of misconduct. In addition, the employee can generally not resign and collect unemployment benefits. Whether the severance is paid out in a lump sum or over time will also affect when an employee can collect unemployment benefits. My office frequently reviews severance agreements and performs severance negotiations for employees who are leaving the job under a myriad of circumstances. We would be pleased to offer more information on this subject in a consultation.