Employee reductions in force and terminations are part of normal business operations in both good and bad economies. Common ways organizations protect themselves from legal exposure are the use of employee "separation agreements" or commonly called "severance agreements". An employee severance agreement is a contract or legal document between an employer and an employee that specifies the terms of an employment termination, such as a layoff. To minimize the risk of potential lawsuits, many employers offer departing employees compensation, outplacement services, and benefits in exchange for a release or waiver of liability for all claims connected with the employment relationship, including discrimination claims enforced by the Equal Employment Opportunity Commission (EEOC). It is important for organizations to have a standard severance agreement template.
Over the years, companies have relied on the EEOC to publish guidance on what employee severance agreements should include and not include. In a recent article published by SHRM, the EEOC generally described employee severance agreements as “overly broad, misleading and unenforceable." After a recent court case involving CVS, the EEOC has taken a more aggressive position on severance agreements and updated their highly publicized Strategic Enforcement Plan with considerations and recommendations to consider. Asa result, the EEOC advised companies to re-look at their standard severance agreement templates from the past and compare to the new recommendations published by the EEOC. Organizations need to make sure to stay updated on these advisements for standard severance agreement templates from the EEOC to ensure compliance.
Standard Severance Agreement Template
(4 Ways To Deliver The News)
Companies can save time and headaches by following the 4 simple ways to delivering severance agreements. Here are a few guidelines to follow when developing your organization's standard severance agreement template:
Provide enough time to consider
Employees should be given at least 21 days to review the severance agreement. Make sure you advise the employee to have the standard severance agreement template reviewed by an attorney. Do not pressure the employee to sign early or rush back to the office, even if you offer the 21 days. An employee's decision to sign a release must also be voluntary, or courts will not enforce the release. Once signed, you must provide a 7 days revocation period to change their mind.
Provide a Sample List of Competitors for the Non-Compete
If you incorporate a non-compete as part of the standard severance agreement template; consider listing specific companies or industries in the agreement as it may be helpful to defend in court. Consult with your legal team first whether this approach makes sense. You'll also want to make sure you provide a good outplacement program to help the employee transition effectively to a new employer in a new industry that doesn't violate the non-compete.
Release or waiver
This is the most important one. You as an employer cannot prohibit the employee from filing a claim with the EEOC. In light of the EEOC’s now more aggressive posture on these issues related to the release as mentioned above, we recommend that the employer set off a statement of the protected rights in a separate paragraph of a separation agreement, perhaps in bold. Make sure you get approval on the standard severance agreement template from your corporate attorney before presenting to your employee.
Special rules apply to older workers
If the employee is 40 years of age or older, a federal law, the Older Workers Benefits Protection Act (OWBPA) dictates what must be included in a release. Among other things, you must give these employees a longer period of time to review the release, allow them to revoke the agreement or change their minds for a limited time after they sign, and advise them in writing to consult with an attorney. Make sure to modify your standard severance agreement template for these situations.
Check out our infographic about improving your severance agreements below: