Waivers in Severance Agreements

If your employer has decided to terminate your job, they may ask you to sign a severance agreement. Ordinarily, employers offer some form of severance payment in exchange for a signed waiver from the employee releasing them of liability for all claims connected with the employment relationship. Many people wonder: Is this legal? Should I sign it?

Employees who sign a waiver agree to surrender certain rights. Depending on the situation, these rights may include the right to sue for age, race, sex and other types of employment discrimination. To properly evaluate a severance agreement, you must understand the terms of the agreement as well as what rights you are giving up. If you do not understand the terms of the severance agreement or have concerns about the fairness of any provision, you should consult with an experienced employment law attorney.

Federal and State Employment Laws

For the most part, employers may enforce signed waivers in severance agreements. However, these waivers must comply with applicable federal and state laws.

For example, the Older Workers Benefit Protection Act requires that employees must knowingly and voluntarily waive their rights under the Age Discrimination in Employment Act (ADEA) for the waiver to be valid. So, at a minimum, the waiver must contain the following provisions:

• the waiver must be written in plain English,
• the waiver must specifically mention the employee's rights under the ADEA,
• the waiver must advise the employee to consult an attorney,
• the waiver must provide the employee with at least 21 days to consider the offer, and
• the waiver must permit the employee seven days to revoke his or her signature.

In Oubre v. Entergy Operations Inc., 522 U.S. 422 (1997), a dismissed employee signed a waiver that failed to comport with the law. The company argued that even though the waiver was defective, the employee waived her right to sue because she kept the severance payment. The Supreme Court disagreed, holding that employees are not bound by defective waivers, even if they keep the severance payments.

Bottom Line

If an employee declines to sign the waiver, he or she may be forfeiting a severance payment. However, if the employee does sign the waiver, he or she may be giving up some valuable legal rights. Employees with grounds for filing a race discrimination, sexual harassment or retaliation claim should find out first how much their claim may be worth and how difficult it would be to pursue the claim. Only then can they make a sound decision regarding their severance agreement.