Severance Agreements: Make them easy to understand and don’t pressure an employee to sign

When one of your former employees signs a severance agreement with a release of all claims, the last thing you want is for that employee to sign and then sue you.

Do over?

Earlier this year, a Pennsylvania federal court issued an opinion (here), in which a plaintiff-employee claimed that she was so stressed when she signed a severance agreement, that her signature on the document didn’t reflect a “knowing and voluntary” waiver of claims against the defendant-employer.

The law basically says that an employee can release all of his or her claims against an employer if the employee does so voluntarily and understands what he or she is doing.

It’s not quite that simple.

There are a bunch of considerations that go into whether a release is knowing and voluntary. But, a big factor — the upon which the Pennsylvania federal court focused — is whether the agreement written in a manner that the average person would understand.

Now, the plaintiff in the Pennsylvania case was over 40. And when an employee is over 40, the Age Discrimination in Employment Act kicks in. Among other things, the ADEA requires that part of a knowing and voluntary waiver of claims means giving the individual up to 21 days in which to consider the agreement, and then another seven days in which to revoke his or her signature. Why? Because that should be enough time not only for the initial stress and pressure to subside but also for the individual to read and understand the agreement. Plus, the ADEA requires an employer to advise the over-40 individual to consult with a lawyer. (Here are all of the ADEA waiver requirements, should you wish to review them.)

Thus, it was no surprise that the Court concluded that “the fact that an employee was experiencing stress and worry at the time she signed a release of employment claims does not mean that her signature was not knowing and willful.” Instead, for a plaintiff to show that a waiver is not “knowing” or “willful,” he or she must present evidence that either the employer applied undue pressure or he/she didn’t understand the document. Here, the plaintiff didn’t have that evidence. Therefore, she lost, and the severance agreement was binding.

For which, by the way, she got paid.

So, what can we learn from this?

1. When offering severance to someone who is 40 years of age or older, check all of these boxes. (Be extra careful if there is a reduction in force.)
2. When offering severance to someone who is under 40 years of age, you don’t need to follow the ADEA, but you should give the individual a reasonable amount of time to review and understand a document that a lawyer should prepare in fairly plain English.

The bottom line is that you’re asking an individual to sign a release to avoid litigation. Try not to do anything to undermine that and, you know, get sued.