Many employers enter separation agreements with employees upon their separation from their jobs. So long as those agreements provide for payment of additional money or benefits in addition to what the employee is already entitled to receive beyond their termination, they should always contain waiver and release provisions. If properly drafted and implemented, effective waivers (or "releases") eliminate the risk that the departing employee will prevail in a lawsuit against their former employer, and they greatly reduce the chance that the employee will sue the employer. Poorly written waivers or those not supported by adequate consideration risk being invalidated and rendered worthless.
Thus, employers should ensure that separation agreements meet certain basic requirements so that employers avoid the possibility of paying an employee severance and then being sued by that employee.
When drafting separation agreements, employers should ensure that certain basic requirements are met:
I . Essential Elements
- Consent
In order for a waiver of claims to be legally enforceable, an employee must provide "knowing and voluntary" consent to the waiver and its provisions. One common mistake is to require the departing employee to sign the agreement immediately upon presentation at the time of the termination. Federal courts in the Eleventh Circuit (which includes Georgia) have directed that employers demonstrate that an employee knowingly and voluntarily enter into a waiver agreement and consider all the circumstances surrounding how the agreement resulted. While giving the employee adequate time to consider the agreement and a waiver has risks, this course is preferable to running the risk of a court holding that the employee signed an unenforceable waiver.
- Consideration
The agreement must explicitly provide what consideration is given for the employee’s agreement to release his claims against his employer. Adequate consideration includes additional pay, extended health coverage or other benefits, and sometimes non-monetary compensation, such as a promise not to contest an unemployment benefits claim. Basically, whatever compensation is provided in the separation agreement between an employer and employee, it must be additional compensation to which the employee is not already entitled under existing company policies.
- Non-coercion provisions
A separation agreement with a valid waiver and release should contain a provision stating that the former employee was not coerced into signing the agreement and directed to consult with an attorney before entering into the agreement. And, the employee, should, in fact, be given that opportunity. If the agreement does not accurately reflect the reality of the actual events of the situation, the chances increase that a court will find the waiver invalid.
II. Certain employee rights are nonwaivable.
No contract between the employer and employee can limit the right of the Equal Employment Opportunity Commission ("EEOC") to investigate a charge, even if the employee has agreed to settle the claims underlying the charge. EEOC policy is that an employer may not interfere with an employee’s right to file a charge, testify, assist, or participate in an investigation, hearing, or proceeding under Title VII of the Civil Rights Act of 1964 ("Title VII"), 42 U.S.C. § 2000e et seq.; the Americans with Disabilities Act ("ADA"), 42 U.S.C. § 12101 et seq.; the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 621 et seq.; or the Equal Pay Act ("EPA"), 29 U.S.C. § 206(d). One recent decision outside the Eleventh Circuit found that a waiver agreement covering claims under various federal anti-discrimination laws constituted retaliation by the Employer.
III. Releases for employees 40 and over require special attention.
The ADEA contains specific provisions regarding waivers of age-related claims. To be valid under the ADEA, a waiver must be part of a clear, understandable, written agreement between the employee and employer and must explicitly state that the employee is agreeing to waive age-related claims under the ADEA in exchange for compensation to which the employee would not already be entitled. In addition, agreements to waive age-related claims must provide 21 days for an employee to consider the agreement before signing, or 45 days in the case of a group termination. Finally, agreements to waive age-related claims must allow an employee seven days in which to revoke the agreement after signing the agreement.
IV. Suggestions for employers
Courts have applied the ADEA’s waiver requirements in interpreting waivers of claims arising under other federal antidiscrimination laws. Employer’s generally bear the burden of communicating with employee’s in readily understandable language. Separation agreements that are overbroad may be invalidated, as may agreements that use the same dense language used by the employer in major commercial transactions. Employers should review their standard separation agreements to ensure that they are clear and understandable to the average person in order to avoid being invalidated. Attention to proper drafting and consistent implementation is the ounce of prevention that should prevent a pound of litigation.
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