A severance agreement -- a contract between an employee and employer -- softens the blow of a job loss. It provides compensation to an employee when the working relationship ends for reasons outside the employee's control. Severance agreements must be carefully constructed to protect the interests of both the employer and the employee, which includes giving the employee reasonable time within which to decide if the terms of the agreement are acceptable.
Severance Agreement Basics
A severance agreement is a contract or letter that an employer extends to an employee when the employee is being terminated, laid off or when his job is being eliminated. The purpose of a severance agreement is to compensate the employee for time served in exchange for the employee’s agreement to hold the company harmless from any claims arising out of his job termination. The time an employee has to sign a severance agreement varies depending on the employee’s age and whether other employees are being laid off at the same time.
Holding Employers Harmless
When an employee agrees to the terms of a severance agreement, she is promising to waive her civil rights and hold the employer harmless for claims of wrongful termination based on age, race, national origin or any other forms of discrimination. Aside from compensating the employee for time served, an employer wants to know that the employee won’t claim the company acted in a discriminatory manner when it terminated the working relationship. Given the terms and conditions of a severance agreement, it’s understandable that an employee would want to take time to review the agreement and possibly have her lawyer review it as well. The United States Equal Employment Opportunity Commission issues technical guidance for employers on severance agreements and the waivers of discrimination claims.
Employees Under 40
Employers must give employees under 40 years of age a reasonable length of time to sign a severance agreement. However, it’s difficult to determine what is reasonable. Employees who feel obligated to sign a severance agreement immediately should reconsider the terms and try to understand why the employer is so anxious to get a signed agreement. There are no federally mandated time limits for employees under 40 years old because they are too young for protection under the Age Discrimination in Employment Act of 1967 (ADEA).
Employees 40 and Older
Employees 40 years of age and older must be given at least 21 days to sign a severance agreement and seven days to reconsider or revoke the signature. The ADEA and the Older Workers Benefit Protection Act protects the civil rights of employees who are subject to discrimination in employment. The EEOC enforces laws regarding the signing of severance agreements because employers have been known to engage in unfair employment practices based on age. Offering severance agreements to older workers is a discriminatory tactic some employers use to eliminate older, experienced employees from the workplace. When more than one employee is being terminated at the same time, employers must give employees 45 days to consider and sign a severance agreement. Employees 40 and older also get seven days to reconsider or revoke their signatures.
- U.S. Equal Employment Opportunity Commission: Understanding Waivers of Discrimination Claims in Employee Severance Agreements
- The New England Job Show; Career Tips: Severance Agreement; Donna Ballman; May 2010
- U.S. Equal Employment Opportunity Commission: The Age Discrimination in Employment Act of 1967
- U.S. Department of Labor. "Severance Pay." Accessed Aug. 16, 2020.
- U.S. Department of Labor. "Wages and the Fair Labor Standards Act." Accessed Aug. 16, 2020.
- NBC News. "While Sears executives get $25 million in bonuses, laid-off workers struggle during Christmastime." Accessed Aug. 16, 2020.
- New York State Department of Labor. "Dismissal or Severance Pay and Your Unemployment Insurance Benefit." Accessed Aug. 16, 2020.
Ruth Mayhew has been writing since the mid-1980s, and she has been an HR subject matter expert since 1995. Her work appears in "The Multi-Generational Workforce in the Health Care Industry," and she has been cited in numerous publications, including journals and textbooks that focus on human resources management practices. She holds a Master of Arts in sociology from the University of Missouri-Kansas City. In addition, she is a certified facilitator for the Center for Creative Leadership Benchmarks 360 Assessment Suite, and is a Logical Operations Modern Classroom Certified Trainer . Ruth resides in North Carolina and works from her office in the nation's capital, Washington, D.C.