Areas of Practice

Severance Agreements

If your employer offers a severance agreement at the time of an anticipated termination or layoff, it is very important that you obtain experienced legal counsel, as a severance agreement usually includes a release of all potential claims concerning your employment. Prior to executing a severance agreement, the circumstances of the termination or layoff should be reviewed to determine whether the employee’s rights have been violated under both state and federal law. Once the agreement has been executed those rights may be completely released.

There is no federal or Ohio statute that requires employers to pay a terminated employee severance pay, other than the Worker Adjustment and Retraining Notification Act (WARN). The WARN Act pertains to a situation where an employer has more than 100 employees and intends to engage in a “plant closing” or “mass layoff”. Under those circumstances, an employer is required to provide a 60 day notice of a plant closing or mass layoff. The purpose of this is to provide workers and their families with some transition time to adjust to the prospective loss of employment, to seek and obtain alternative jobs, and if necessary, to enter skill training or retraining that will allow these workers to successfully compete in the job market. Damages and civil penalties can be assessed against employers who violate the WARN act. An employer that fails to provide the required notice under the WARN Act must pay an employee’s back pay for each day of violation up to a maximum of 60 days.

Employer established severance plans are governed by ERISA and are deemed “Employee Welfare Benefit Plans”. With any other ERISA covered benefit plan, the employer is required to furnish participants and beneficiaries with a Summary Plan Description (“SPD”). The SPD is required to communicate the rights and obligations under the plan.

If the employee is over age 40 and the intent of the severance agreement is to include a waiver of rights under the Age Discrimination in Employment Act (ADEA), there are requirements imposed under the Older Workers Benefit Protection Act (OWBPA) concerning what is required to be included in the severance agreement. There is a requirement that the employee be given 21 days to consider the agreement and at least 7 days to revoke the agreement after signing.

There are more stringent requirements under the OWBPA if it is a group termination. The employee must be provided 45 days to consider the agreement, instead of 21; and there must be disclosure of the job titles and ages of all individuals eligible or selected for the group termination program as well as the ages of all individuals in the same job classification or organizational unit who are not eligible or were not selected for the program. There must also be information provided concerning the class, unit or group of individuals covered by the group termination program, any eligibility factors for such program, and any time limits applicable to such program.

At the time a severance agreement is negotiated, there may be concerns regarding covenants not to compete that came into existence during the term of employment. Payments made under severance agreements will affect the amount of unemployment benefits available to the terminated employee.

It is very important that an employee has a complete understanding of all rights that are being released under a severance agreement. You may contact us by completing a confidential case analysis form or by calling us directly at (330) 258-8000.

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