How Long Should You Have to Review a Severance Agreement

First in a two-part series

Shore up severance packages to make a clean break.

At the start of an employment relationship, employers oftentimes rely on their forms -- more than specifically, the application form -- with picayune thought of alteration. In the employment relationship'due south infancy, 1 size may fit all.

When information technology comes to ending an employment relationship, some employers follow the aforementioned arroyo. They take their "form" severance agreement, which includes a general release, and tweak termination dates and number of weeks' severance with the idea that one size fits all, more than or less.

This approach initially may seem like a time saver, merely information technology tin outcome in protracted litigation, a risk that will but abound in light of the electric current barrage of legal challenges on general releases, sometimes referred to as waivers. Every bit courts scrap what was common to agreements but a few years ago, employers should make sure they aren't using the aforementioned old severance agreements that courts no longer corroborate.

Moreover, employers must consider a number of decision points in drafting severance agreements, even when their "forms" practise not include problematic language. For example, for a waiver to be effective, unlike requirements may apply depending on:

• The employee's age.

• Whether the termination is isolated or role of a grouping.

• The state where the employee worked.

Finally, employers demand to residuum competing legal and business risks in drafting severance agreements. What may exist appropriate in one reduction in force (RIF) may not be appropriate in another RIF, based on the employer'south business objectives and gamble assessment. As demonstrated below, there is no such affair as a no-risk termination or a no-run a risk severance understanding.

Fourth dimension To Consider Signing

To brand a strategic option about legal requirements, employers showtime must reacquaint themselves with familiar requirements now interpreted in surprising ways.

Employers should pay attention to the requirement that employees be given time to consider whether to sign a severance agreement, a menstruum that varies depending on the employees' ages. This specific statutory requirement must be met for a release of claims arising nether the Age Discrimination in Employment Act (ADEA), as amended by the Older Workers Do good Protection Act (OWBPA), to be enforceable.

Employees age twoscore or older must be given 21 days to consider the employer'due south offering, unless it is role of a grouping termination. In a grouping termination, employees must be given 45 days.

If the employee is younger than 40, at that place is no specified period of time which the employee must be given to sign the severance agreement. Withal, the amount of time given to an employee becomes a gene that a court considers in determining whether a waiver of Title Vii, the Americans with Disabilities Human activity (ADA) or other non-ADEA claims is "knowing and voluntary." More often than not, the more time an employer offers, the stronger the employer's position.

Employers oft employ the fourth dimension frames gear up forth in the ADEA every bit benchmarks to maximize the likelihood that a release will be knowing and voluntary for non-ADEA claims. Accordingly, employees younger than 40 ofttimes are given the same 21 or 45 days as older counterparts.

A Week To Revoke

Even if an employer provides ADEA time frames to employees younger than xl, it does non automatically follow that the employer must or should extend ADEA revocation rights to those employees.

Under the OWBPA, employees must be given vii days to revoke their waivers of age claims after they sign severance agreements. This correct to revoke applies in the context of individual and grouping terminations.

Beyond the ADEA, employers are not required to provide employees with the selection to revoke under federal employment police force. The question becomes whether an employer should offer this right to employees younger than 40 equally a matter of practice.

Of grade, if y'all offer employees younger than 40 the correct to revoke and they don't practice this right, this is helpful in establishing that the waiver was knowing and voluntary -- the standard for waivers nether Title Vii and the ADA. Only in that location is a countervailing concern consideration: The employee could exercise the correct, in which example the company ends upwards with a claim information technology otherwise would not accept.

Accordingly, employers demand to balance the benefits and risks of extending revocation rights to employees younger than 40. Different factors may inform that decision.

If you accept an employee younger than 40 who threatens to sue and has a history of changing his or her mind, you lot might not want to offering that employee revocation rights. Conversely, in a group termination, for administrative ease, you may want to treat all employees the same regardless of age and consequently include revocation rights in all severance agreements.

Employers must consider federal and state laws. For example, for a waiver or release of claims under the Minnesota Human Rights Human action to exist binding, the employer must notify the employee in writing that he or she has xv days to rescind the waiver or release. The statute prescribes the manner in which the right to rescind must be communicated and how it must exist executed.

Decisional-Unit Attachments

For a waiver of age claims to be effective in a grouping termination, employees must be given information about the "decisional unit of measurement."

Generally, the decisional unit of measurement consists of the positions considered by the employer in deciding whom to let go. Depending on circumstances, the decisional unit could be, for example, the unabridged company, a division, a section, employees reporting to a particular manager or workers who fall nether a particular job nomenclature.

After defining the decisional unit of measurement, an employer must identify:

• The job titles and ages of employees in the decisional unit eligible for or selected for the "program," as well as the task titles and ages of employees non eligible for or selected for the plan.

• The eligibility factors adamant for the program and any time limits applicable to it.

The initial question is whether the plan referenced in the statutory language cited higher up relates to the underlying termination decisions or to the severance offered subsequent to the termination decisions.

Historically, the conventional wisdom has been that the program is the severance program, not the underlying termination decisions. Under this analysis, employers define in their decisional-unit attachments the criteria to be satisfied to receive severance, non the criteria used to determine who would be terminated.

However, in Kruchowski v. Weyerhaeuser Co. (423 F.3d 1139 (10th Cir. 2005) (Kruchowski I)), the 10th Excursion held that the eligibility requirements that must exist specified relate to the underlying termination decision and not to who is eligible for severance pay after the termination. In that case, factors the employer considered in determining who would be terminated were "leadership, abilities, technical skills and beliefs of each employee." Considering these criteria were not included in the decisional-unit attachment, the courtroom held that the releases were ineffective against age discrimination claims.

After providing employers with a scare, the tenth Circuit vacated the Kruchowski conclusion and reissued its opinion without addressing this requirement (come across Kruchowski v. Weyerhauser Co., 446 F.3d 1090 (10th Cir. 2006) (Kruchowski 2)). While this was good news for the employer, information technology is besides early to interruption out the champagne.

At to the lowest degree ii district courts take followed the analysis in Kruchowski I, holding that employers must include in their decisional-unit attachments the reasons why employees have been selected for termination. One case was before the Kruchowski reversal; the second case, after it (see Merrit 5. Showtime Energy Corp., C.A. No. 00585 (N.D. Ohio March 31, 2006) and Pagliolo v. Guidant Corp., 483 F.Supp.2d 847 (D. Minn. 2007)).

In calorie-free of the legal uncertainty, employers may want to address the eligibility requirements in their decisional-unit attachments for the underlying termination decisions likewise every bit the severance program. This is not a risk-complimentary course of activity, however.

How the employer defines the criteria in the decisional-unit of measurement attachment is open-door in litigation. To the extent that the decisional-unit attachment is inconsistent with subsequent testimony, the decisional-unit attachment may be used to impeach that testimony.

Farther, to the extent that performance was a consideration, the employer will need to include performance in the decisional-unit attachment. This flies in the face of conventional wisdom that an employer should not tell i employee why another employee was terminated.

This concern relates to another issue: How much detail is enough? In the Pagliolo conclusion, the court provided some guidance, stating that the employer did not need to list the eligibility factors for each employee separately but rather only the eligibility factors mostly applied -- for example, job criticality and performance.

Of course, what was enough for the Pagliolo court might not be enough for another courtroom. The lesser line: There is no clear reply; again, an employer must residual competing risks.

Risk Assessment

If an employer does non comply with all of the requirements of the OWBPA, this does not mean that the release is unenforceable against all claims. It means but that the release is unenforceable against age claims.

There may be times when an employer may wish to make a considered decision non to comply with the OWBPA considering the employer's primary concern is risk nether Title Vii or the ADA and not under the ADEA. Assume, for example, the following scenario:

A reduction in force results in five sales employees in a partitioning being laid off. Simply one of the five employees permit go is historic period twoscore or older, and just barely; lx percentage of the sales employees in the division are age 40 or older. Four of the five employees allow go are women, even though women business relationship for only 30 percent of the division's sales employees.

In this fact pattern, the Title VII risk appears to be considerably greater than the ADEA risk. When you look at the employees who take been laid off, women are overrepresented and older employees are underrepresented.

The employer may non desire to requite the employees 45 days to make up one's mind, seven days to revoke or a decisional-unit attachment to study. Instead, the employer may wish to assume the ADEA hazard to capture the Title VII risk by trying to meet the general knowing and voluntary standard only and getting the certificate signed sooner rather than after without a right to revoke.

In balancing risks, employers also need to consider what claims to listing in the general release. This requires understanding contempo cases and regulations under federal police force, as well as requirements and restrictions that may exist nether state law. Adjacent month's Legal Trends column addresses these issues.

Editor's Annotation: This article is not intended as legal communication. For specific situations, consult qualified employment law counsel.

The author is vice chair of WolfBlock'due south Employment Services Group and managing chief of the WolfInstitute. His practice in Philadelphia concentrates on preventive planning, counseling and training.

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Source: https://www.shrm.org/hr-today/news/hr-magazine/pages/0708legaltrends.aspx

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