Severance Pay and Releases of Claims

Severance pay is generally defined as pay and benefits an employee receives when they leave employment at a company. In addition to the employee's remaining regular pay, it may include some of the following: An additional payment based on months of service. Payment for unused vacation time or sick leave. Severance pay is not required by law. However, some employers guaranty their employees a certain amount of severance pay depending on how long they have been employed.

Many employers attempt to persuade an employee it wishes to fire or lay off to sign a "release" agreement. A release agreement is a contract by which an employee gives up his right to sue the employer for any and all claims the employee may have - whether known or unknown. This may include claims for discrimination. Most employers seek a general release from employees in connection with voluntary or involuntary severance payments or early retirement benefits to limit their exposure to lawsuits by employees challenging the company's selection decisions. Older workers are often presented with severance agreements and claim release forms (releases) by which the employer intends for the older work to give up what may be a valid claim for age discrimination in exchange for some benefit like severance pay (which the law does not require employers to pay). Under the California Labor Code Section 206.5, if an employer already has a policy or contract with the employee that guaranties some form of severance pay or benefit, the employer cannot force the employee to sign a release to obtain the severance since the employee has already earned it by virtue of her past work with the employer or by contract.

Whenever employers seek a release of federal age discrimination claims, they must comply with the Older Workers Benefit Protection Act (OWBPA). Under the OWBPA, employers must allow employees over 40 years of age at least 21 days to consider waivers not to sue offered by an employer in exchange for early retirement benefits. It is important to note that the OWBPA's requirements apply only to the release of age discrimination claims under the ADEA. The release of all other claims, such as state law claims, are not affected by compliance with the OWBPA.

For a waiver of an age discrimination claim to comply with the OWBPA, it must meet the following criteria:

  1. be in writing and be understandable;
  2. specifically refer to ADEA rights or claims;
  3. not waive rights or claims that may arise in the future;
  4. be in exchange for valuable consideration;
  5. advise the individual in writing to consult an attorney before signing the waiver; and
  6. provide the individual at least 21 days to consider the agreement and at least 7 days to revoke the agreement after signing it.

If an employer requests an ADEA waiver in connection with an exit incentive program or other employment termination program, the minimum requirements for a valid waiver are more extensive.

For a free consultation about age discrimination in the workplace with an experienced employee rights attorney, contact David Spivak:

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Disability discrimination
Age discrimination
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