If your employer decides to terminate your job, you may be given a severance agreement. This agreement may require you to waive your right to sue for wrongful termination based on age, race, sex, disability, and other types of discrimination. Most signed waivers are enforceable if they meet certain contract principles and statutory requirements. However, an employer cannot lawfully limit your right to testify, assist, or participate in an investigation, hearing, or proceeding conducted by the EEOC. Also, an employer cannot lawfully prevent you from filing a charge of discrimination with the agency. Additionally, if you do file a charge, an employer cannot lawfully require you to return the money or benefits it gave you in exchange for waving your rights. This information is not intended to cover all of the issues that arise when your employer informs you that you are being terminated or laid off. However, this may help you decide whether or not to sign a waiver.
Severance Agreements Defined
- A severance agreement is a contract, or legal agreement, between an employer and an employee that specifies the terms of employment termination, such as a layoff.
- Sometimes this agreement is called a “separation” or “termination” agreement or “separation agreement general release and covenant not to sue.”
- Like any contract, a severance agreement must be supported by “consideration.” Consideration is something of value to which a person is not already entitled that is given in exchange for an agreement to do, or refrain from doing, something.
- To file a claim, there must be an addition to any of the employee's existing entitlements, such as something of value additionally offered. An example of consideration would be a lump sum payment of a percentage of the employee’s annual salary or periodic payments of the employee’s salary for a specified period of time after termination. You may not sue for something you are already entitled to as an employee, such as pension benefit or payment for vacation or sick leave.
- The employee’s signature and retention of the consideration generally indicates acceptance of the terms of the agreement.
What does a severance agreement look like?
A severance agreement often is written like a contract or letter and generally includes a list of numbered paragraphs setting forth specific terms regarding the date of termination, severance payments, benefits, references, return of company property, and release of claims against the employer.
If your employer decides to terminate you, it may give you a severance agreement similar to the one that follows:
Example 1: This letter sets forth our agreement with respect to all matters that pertain to your employment and separation from employment by [your organization] (“the Company”).
- Termination of Employment. You will cease to be employed by the Company on X date.
- Severance Payments. The Company agrees to pay you X weeks of severance pay. The severance pay will be in addition to the payment of unused accrued vacation pay to which you are entitled. You may elect to receive this severance pay in the form of a lump sum payment, or spread it over a number of weeks, less applicable deductions for taxes.
General Release. You agree that the consideration set forth above, which is in addition to anything of value to which you are or might otherwise be entitled, shall constitute a complete and final settlement of any and all causes of actions or claims you have had, now have or may have up to the date of this agreement including, without limitation, those arising out of or in connection with your employment and/or termination by the Company pursuant to any federal, state, or local employment laws, statutes, public policies, orders or regulations, including without limitation, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act, the Americans with Disabilities Act, and [certain state] laws.
Agreements that specifically cover the release of age claims will also include additional information intended to comply with OWBPA requirements.