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July 29, 2009
EEOC's Tips for Waivers in Severance Agreements

The U.S. Equal Employment Opportunity Commission has published guidance explaining terminated employees’ rights and obligations when an employer offers severance pay in exchange for a waiver of discrimination claims.

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The guidance comes in a question-and-answer format. The questions cover basic information about severance agreements, the validity of waivers, and speciffic requirements for waivers of age discrimination claims. The document also includes a checklist with tips for employees and a sample of an agreement offered to a group of employees giving them the opportunity to resign in exchange for severance benefits.

The EEOC says it issued the guidance following a spike in age discrimination complaints and the increased use of severance agreements because of the current wave of layoffs.

In the document, the EEOC explains that when a court looks at whether the waiver is enforceable it will examine the validity of it. In general, a waiver in a severance agreement is valid when an employee knowingly and voluntarily consents to the waiver.

The rules regarding whether a waiver is knowing and voluntary depend on the law under which the employee would bring a lawsuit. For example, the agency explains the basic requirements for a waiver to be valid under the Older Workers Benefit Protection Act (OWBPA), which includes specific requirements for a “knowing and voluntary” release of age-discrimination claims and additional disclosure requirements when waivers are requested from a group or class of employees.

The EEOC notes that when examining whether a severance agreement is valid, most courts consider the following circumstances and conditions under which the waiver was signed:

  • Whether it was written in a manner that was clear and specific enough for the employee to understand based on his education and business experience;
  • Whether it was induced by fraud, duress, undue influence, or other improper conduct by the employer;
  • Whether the employee had enough time to read and think about the advantages and disadvantages of the agreement before signing it;
  • Whether the employee consulted with an attorney or was encouraged or discouraged by the employer from doing so;
  • Whether the employee had any input in negotiating the terms of the agreement; and
  • Whether the employer offered the employee consideration (e.g., severance pay, additional benefits) that exceeded what the employee already was entitled to by law or contract and the employee accepted the offered consideration.

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