Benefits and Compensation

Severance Agreements: Drafting Do’s and Don’ts for Avoiding EEOC Attention

Van Parys, who is with Carothers DiSante & Freudenberger LLP in Sacramento, offered his tips at the SHRM Annual Conference and Exposition held recently in Orlando.

Recent EEOC Actions

Two recently filed lawsuits, in which severance agreements were called  overly broad and unenforceable, may help employers fashion their own severance agreements, says Van Parys.

EEOC v. College America Denver (CA)

A campus director resigned. CA and she signed agreements that offered $7,000 in exchange for her agreement not to, among other things, disparage the company.
The company said that e-mails exchanged with another employee violated the agreement, and it demanded the return of the $7,000.

The former employee filed an EEOC charge, and the company sued her. Then she filed retaliation charges.

The EEOC asserted that severance agreement provisions violated the Age Discrimination in Employment Act (ADEA), by chilling the right to participate in investigations. The EEOC also challenged provisions prohibiting contact with government agencies and cooperation with others who file complaints.

The lawsuit is ongoing.

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EEOC vs. CVS Pharmacy

In the other, similar, suit, the company’s severance agreement had what Van Parys considers pretty standard language. It said that nothing shall be construed to prohibit charges, but employee waives the right to monetary damages. The EEOC seems to be saying either the employee should be allowed to recover, or the agreement was not explicit enough.

This suit is also ongoing, but that type of provision has been enforced before by courts, and he still recommends using it.

Short Form Severance Sample

Here is the shorter form of agreement that Van Parys uses. A longer, more detailed form may be appropriate, he says, but this one will get the job done.

With the exception of the rights, liabilities, and obligations created by this Agreement, Employee hereby releases and discharges the Employer, its past and present officers, members, directors, agents, employees, volunteers, parent and affiliated entities, insurers, successors and assigns, from any and all obligations, liabilities, and claims (known or unknown, foreseen or unforeseen) whatsoever arising out of or relating to the employment relationship or the termination thereof.

Employee specifically acknowledges that she or he is releasing all such claims, including but not limited to, all statutory claims arising under Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, the Age Discrimination in Employment Act (“ADEA”), the Fair Labor Standards Act, [ the California Fair Employment and Housing Act, the California Labor Code] wage orders, and any other federal, state, or local statutes or regulations governing the employment relationship, as well as any other claims, including but not limited to claims for wrongful termination, discrimination, defamation, fraud, breach of contract, negligence, and/or personal injury.

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Other Things You May Want to Include

In addition to the standard text, you might want to consider adding the following provisions to your severance agreement, Van Parys says.

Recitals. Recitals are extra information you may want to include. For example, you may want to make it very clear when the person started work and stopped work. You are doing this to give background to someone later who is trying to make a decision, for example, a court.
If the employee challenges the agreement, the judge is likely to go straight to the agreement and may not read whatever you submitted to explain.

Consideration. In the EEOC lawsuit, the consideration was $7,000, and if the employee violated the nondisparagement agreement, she would have to give back all $7,000. Courts tend to look at that as an unfair agreement, says Van Parys.  He likes to make the penalty less than the full amount—e.g., $1,000 or $500.

Taxability. You may want to clarify the taxability of the payment.

Cooperation. You may want a statement that the employee agrees to participate in proceedings; to produce documents; not to communicate with any person who is litigating against the company; and to maintain confidentiality about the agreement.

Unpaid wages. You may want the employee to agree that with this severance agreement the employee has been paid for any unpaid wages.

OWBPA language and special rules. If you are dealing with a 35-year-old, the deal is done when it is signed, says Parys. But if the employee is 40 or older, you have to follow ADEA rules that give him or her 21 days to consider the offer, and then 7 days to revoke it. And you have to include detailed language concerning the employee’s rights.

If the person is under age of 40, no need to include that ADEA language in the “laundry list” or include the separate release language because the person cannot make a claim, says Van Parys.

In tomorrow’s Advisor, we provide tips for managing the process of severance, plus we announce a new BLR webinar—Merit Increases: How to Accurately Budget for Performance-Based Raises.

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