Labor Law: Severance Agreement Additions By Employers

Severance agreements are contracts between employers and employees that outline the terms of an employee's departure from a company. While severance pay is not mandated by federal or state laws in the United States, employers may choose to offer it as a benefit to support transitioning employees. These agreements often include a release or waiver of certain rights, such as the right to sue for wrongful termination, in exchange for financial compensation. However, there are legal considerations that employers must navigate to ensure fairness and ethical practices. For instance, employers cannot require employees to broadly waive their rights under the National Labor Relations Act or certain statutory claims, such as the right to file a discrimination charge. Employees are advised to seek legal counsel before signing severance agreements to understand their rights and negotiate favorable terms.

Severance pay is not mandated by federal or state laws in the US

Although severance pay is not legally required, employers may choose to offer it as an employee benefit to uphold fairness, ethical practices, and employee welfare. Severance pay can provide a financial cushion to support employees during their job search or transition period, which can help maintain employee morale and foster a positive work environment during challenging workforce transitions. It can also serve as a financial incentive for departing employees to uphold their obligations under non-compete or confidentiality agreements, protecting the employer's business interests.

The applicability and specifics of severance pay can vary based on the employer's policy, employment agreements, and applicable federal and state laws related to insurance benefits, unemployment benefits, non-compete clauses, and unused vacation time. Final paycheck laws, which dictate the timing and requirements for providing employees with their last paycheck after leaving a job, also vary between states.

Severance agreements often include a denial of liability and nonparticipation clauses, in which employers attempt to prevent employees from voluntarily participating in lawsuits against them. Employers may also include non-disparagement clauses to restrict former employees from speaking negatively about them. Employees may negotiate for higher severance pay if they believe they have strong employment law claims against their employer, and they may be able to release certain claims in exchange for severance benefits. However, employers cannot require employees to waive their rights to file discrimination charges with the EEOC, and waivers of ADEA claims must meet certain requirements to be enforceable.

Severance agreements are contracts between the employer and employee

Severance agreements are contracts between an employer and employee, and they typically involve the employee agreeing to waive certain rights in exchange for a financial incentive. These agreements are not mandated by federal or state laws in the United States, and there is no requirement for severance pay under the Fair Labor Standards Act (FLSA). However, it's important to note that certain circumstances, such as the Worker Adjustment and Retraining Notification (WARN) Act, may trigger legal requirements related to severance pay.

The purpose of a severance agreement is to outline the terms of an employee's departure from a company. Employers often include a release or waiver in the agreement, which means the employer is paying the employee not to sue. This can include a denial of liability, preventing the employee from participating in claims or lawsuits against the employer, and restricting the employee from making negative statements about the employer. It's important to note that an employer cannot require an employee to waive their right to file a discrimination charge.

From the employer's perspective, a severance agreement provides a sense of finality and ensures a clean break. For the employee, it offers financial support during the transition period between jobs. The amount of severance pay is usually based on the length of employment and can vary from a few weeks to several months of salary.

Before signing a severance agreement, employees are advised to seek legal counsel to review the terms and ensure they understand their rights and the potential consequences. Negotiation is often possible, and employees can seek more favorable terms or higher severance pay, especially if they have strong employment law claims against their employer. It's important to carefully consider the value of any potential case and the possibility of discrimination before accepting a severance agreement.

Employers cannot ask employees to waive their rights under the National Labor Relations Act

Severance pay is not mandated by federal or state laws in the United States. However, employers must navigate legal considerations and make informed decisions to uphold fairness, ethical practices, and employee welfare if they choose to offer it. Severance agreements are often used as a strategy to deter employees from exercising their statutory rights, with employees feeling they must give up these rights to receive benefits.

The National Labor Relations Board (NLRB) has ruled that employers may not offer severance agreements requiring employees to broadly waive their rights under the National Labor Relations Act. This decision upholds the important principle that employees cannot be asked to choose between receiving benefits and exercising their rights under the Act. It restores a longstanding precedent that had been abandoned in 2020 by the previous Board, which found that offering such agreements was not unlawful.

The National Labor Relations Act affords employees certain rights, including the right to join together to improve their wages and working conditions, with or without a union. Employees have the right to attempt to form a union or decertify an existing one, and they are protected in their attempts to engage in "concerted activity", which is when two or more employees take action for their mutual aid or protection regarding terms and conditions of employment. A single employee may also engage in protected "concerted activity" if they are acting on the authority of other employees.

Employees cannot be forced to waive their right to file a discrimination charge, nor can they be prohibited from discussing or sharing information about their wages and working conditions with their co-workers, a labor organization, or any government agency. This includes the NLRB and the media. Such rules or agreements could chill employees from discussing or sharing information about their working conditions and may violate the National Labor Relations Act.

Severance pay is a matter of agreement between the employer and employee

The Fair Labor Standards Act (FLSA), enforced by the U.S. Department of Labor (DOL), does not require severance pay. However, it restricts certain rights that employees may waive when entering into a severance agreement. For instance, an employer cannot require an employee to waive their right to file a discrimination charge or to broadly waive their rights under the National Labor Relations Act. Additionally, waivers of ADEA claims are only enforceable if the employer gives the employee at least 21 days to consider the waiver and advises them to consult an attorney.

Severance agreements are contracts, and employees should carefully consider the terms before signing. It is important to have a lawyer review the agreement to ensure a clear understanding of the rights being waived and the terms' potential restrictions. A lawyer can also assist in negotiating more favorable terms and evaluating whether the severance pay offer is fair based on the employee's position, years of service, and the company's finances.

From the employer's perspective, a severance agreement provides a sense of finality and ensures a clean break. It can demonstrate fairness and goodwill, providing financial support to the employee during their transition period. For employees, severance pay can offer a financial cushion while they seek new employment, helping cover expenses such as job search costs, health insurance, and retraining.

Severance agreements can include non-disparagement clauses

Severance agreements are not mandated by federal or state laws in the United States, and are a matter of agreement between an employer and employee. However, there are legal considerations that employers must navigate to ensure fairness, ethical practices, and employee welfare.

The National Labor Relations Board (NLRB) has recently ruled that companies can no longer offer severance agreements that include non-disparagement and confidentiality clauses. This decision returns to the longstanding precedent that employers cannot require employees to broadly waive their rights under the National Labor Relations Act (NLRA). The NLRB's ruling, however, alluded to the possibility of including disclaimers that allow for non-disparagement provisions, as long as they do not infringe on employees' Section 7 rights.

In California, non-disparagement clauses have been restricted by the Silenced No More Act, which requires that such clauses contain a disclaimer explicitly stating that employees are not prevented from discussing or disclosing information about unlawful acts in the workplace.

Broad non-disparagement clauses will be enforced as written, even if there is a legitimate need for discussion. However, statements of facts already known to an organization do not constitute disparagement, as the communication of facts cannot lower the organization's reputation if they were already known.

When included in a severance agreement, a non-disparagement clause may state that the former employee will "not directly disparage the Employer in any manner, nor will he encourage anyone else to do so either through direct or indirect means." The agreement may also include a mutual provision that the employer will not disparage the former employee.

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