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Why you should not sign a severance agreement immediately

On Behalf of | Jun 25, 2023 | Employment Law |

Age discrimination in employment – at least, for workers and applicants of a certain age – is prohibited by law. Specifically, the Age Discrimination in Employment Act of 1967 (ADEA) prohibits discrimination against employees based on age if they’re 40 or older by employers who have at least 20 employees. Unfortunately, as with other types of illegal discrimination, some employers will try to find ways to disguise unlawful behavior as something else. This is perhaps especially true when it comes to termination.

One way that some employers try to get around allegations of age discrimination is by offering older employees severance agreements if they “retire” early. Employees may be offered salary continuation for a few months, a lump-sum payment and/or continued benefits like health insurance for a time. This might seem like a good option – particularly to an employee who fears being laid off with no benefits. However, if it becomes obvious that an employer got rid of older employees rather than younger ones (who probably cost them less), lawsuits could ensue.

The requirements of ADEA waivers

Many employers used to include ADEA waivers in their severance agreements that compelled employees who accept severance packages to refrain from suing under the ADEA. As a result, another law, the Older Workers Benefit Protection Act (OWBPA), was enacted in 1990.

The OWBPA requires that employees be given 21 days to decide whether or not to sign an agreement and seven days to change their mind if they do sign one. Further, it requires the waiver to be written in clear language. A U.S. Supreme Court decision later stated that an employer couldn’t require a former employee to “tender back” what they’d received from their severance agreement or pay any damages or costs to the employer if that former employee later chose to take legal action.

The OWBPA also states that employers are supposed to advise employees of their right to seek legal counsel before they sign a severance agreement. Of course, this is good advice when you’re presented with any contract by an employer or anyone else – particularly one that will affect your financial well-being. Getting experienced legal guidance can help you avoid making decisions that could prove costly in the future. It also helps level the playing field when you’re dealing with a party that’s more powerful and well-funded than you.