Employers who offer a severance agreement to induce you to waive your rights must follow special rules if you are over the age of 40. Federal law requires these severance agreements to be clearly written and explicit. You must be given adequate time to review the agreement and cannot be pressured into signing it. Violations can amount to age discrimination.
What must the severance agreement include?
Severance agreements, also known as separation agreements, are binding post-employment contracts. They are common after a reduction in force (RIF) or a layoff. The employer agrees to provide severance pay. In order to receive it, the employee agrees to comply with the terms of the agreement. This often involves:
- waiving your right to file a lawsuit against your former employer, such as for wrongful termination or an age discrimination claim,
- not soliciting your former employer’s business or employees, and
- not competing with your former employer.
If you are over the age of 40, though, the federal Age Discrimination in Employment Act (ADEA)1 has additional requirements. As amended by the Older Workers Benefit Protection Act (OWBPA),2 the ADEA requires that all waivers of your rights under the ADEA be made knowingly and voluntarily.3 In order for the waiver to be knowing and voluntary, the agreement to waive your rights must:
- be written in a way that can be understood by the average person,
- specifically refer to your rights under the ADEA,
- not force you to waive rights that have not yet arisen at the time that you sign the agreement,
- provide you something of value, to which you were not already entitled, in exchange for the waiver of your rights,
- include a written provision that advises you to consult with a lawyer before signing the waiver,
- give you adequate time to review the agreement, and
- provide you with time to revoke your agreement after it has been given.4
Regulations promulgated by the U.S. Department of Labor (DOL) further specify that the waiver:
- must be entirely in writing,
- use plain language that is geared toward your level of education,
- be free from technical jargon and long, complex sentences,
- not be misleading, and
- refer to the ADEA by name.5
Under no circumstances can the separation agreement make you waive your rights to participate in a case involving the U.S. Equal Employment Opportunity Commission (EEOC).
These additional requirements apply to all employers that have 20 or more employees.6
How much time do I have to consider the agreement?
Federal law requires that older employees aged 40 or over be given adequate time to consider the severance agreement. How much time is required will depend on the number of departing employees. Additionally, you are entitled to a short period of time after signing the agreement to revoke your waiver. The agreement can only go into effect once this revocation period has passed.
If you are the only worker being terminated, then you must be given at least 21 days to consider the agreement to waive your ADEA rights.7
If you are not the only worker who is being terminated, then you must be given at least 45 days to consider the waiver.8
Any material changes to the severance package and the waiver agreement will restart the applicable period of time.9
You can choose to sign the agreement before these time limits have expired. However, doing so must be done knowingly and voluntarily.10
If you do sign the waiver, you are entitled to at least 7 days to revoke it. During this time, the severance agreement and waiver are not enforceable.11
Do I have the right to an employment lawyer?
Yes, if your employer is asking you to waive your rights under the ADEA, then you have a right to discuss your options with an employment attorney at your own expense. The waiver agreement must inform you of this right and advise you to use it.12
Before signing, it is essential to establish an attorney-client relationship and get sound legal advice from legal counsel at a reputable law firm that has experience in employment discrimination.
What if I am not the only person that is being let go?
If you are not the only person being terminated, then the ADEA requires:
- a longer period of time to consider the severance agreement, and
- your employer to provide you with information about the personnel being let go.
Rather than having 21 days to consider the waiver and severance, you and the other discharged workers would have 45.13
Additionally, your employer must provide you with information about the employees who are being terminated. This information:
- must be in writing,
- has to be reasonably understandable, and
- must include the job titles and ages of the workers who are being terminated or who are eligible for an exit program, as well as workers in the same job classifications but who are not being terminated.14
The purpose of requiring the disclosure of this information and eligibility factors is to let you make an informed decision as to whether to sign the waiver agreement or not. The information in the disclosure can help you see whether age is a factor in who was laid off.15
What rights am I waiving in order to receive the severance pay?
The rights you agree to waive in order to receive severance will depend on the separation agreement. Employers generally draft these agreements to protect themselves from claims that they believe you may have against them. Some common legal rights that you will have to waive in order to receive severance pay include:
- discrimination claims, including those for age discrimination,
- wrongful termination,
- sexual harassment allegations,
- defamation,
- disability claims,
- retirement benefits under the Employee Retirement Income Security Act (ERISA),
- family leave benefits under the Family and Medical Leave Act (FMLA), and
- rights to join a class action lawsuit against your former employer.
The specific rights that you will have to waive are generally laid out in the section of the agreement titled “release of claims.”
However, there are some legal rights that you have that cannot be waived in a general release agreement. These include your rights to:
- workers’ compensation benefits,
- unemployment insurance benefits,
- wages that you were already entitled to receive, and
- file a discrimination claim with the EEOC or participate in a case brought by the Commission.
If an employee signs a release that waives these rights, courts will not enforce the waiver.
What is the law in California?
California employment law protects workers slightly more than federal employment law.
While you can legally waive your right to file a discrimination claim under a federal law such as Title VII, your rights under California state law survive. For example, you can waive your rights to join a class action lawsuit for discrimination in a severance agreement. However, your rights to join or form a class action under the California Private Attorney General Act (PAGA) will remain.
Additionally, some other rights that are commonly waived in separation agreements are not enforceable in California. For example, many severance agreements contain non-compete provisions. These non-compete agreements are unenforceable under California law.16
Additional resources
For more information, refer to the following:
- Severance Pay – Short description by the U.S. Department of Labor.
- Severance Pay: What It Is and Why You Should Negotiate a Package Before Accepting a Job – Article by the Wall Street Journal.
- What to know about severance pay, insurance and benefits if you’re laid off from your job – Guide by CNBC.
- Severance pay laws by state 2023 – Overview by Workforce.com.
- Severance and Taxes: Is Severance Taxable? – Discussion by H&R Block.
Legal References:
- 29 USC 621 et seq.
- Pub. L. 101-433.
- 29 USC 626(f).
- Same.
- 29 CFR 1625.22.
- 29 USC 630(b).
- 29 USC 626(f)(1)(F)(i).
- 29 USC 626(f)(1)(F)(ii).
- 29 CFR 1625.22(e)(4).
- 29 CFR 1625.22(e)(6).
- 29 USC 626(f)(1)(G).
- 29 USC 626(f)(1)(E).
- 29 USC 626(f)(1)(F)(ii).
- 29 USC 626(f)(1)(H).
- 29 CFR 1625.22(f)(1)(iv).
- California Business and Professions Code 16600 BPC.
