United States: Best Legal Practices For Separation Agreements During Layoffs

When employees are leaving your organization, whether by choice or not, it can be in the business's best interest to provide a separation and release agreement that asks workers to waive certain claims against the employer in exchange for a new benefit. What that benefit is can be determined by the employer and includes such things as severance pay, benefits continuation, outplacement services, accrued but unused vacation, or an accelerated or pro-rated bonus -- depending in some cases on the state where the company resides.

There are a variety of scenarios where the use of separation and release agreements should be considered by employers including:

  • Individual involuntary terminations
  • Individual voluntary terminations
  • Forced resignations
  • Reductions in force (Layoffs)

In a recent RiseSmart #SmartTalkHR Webinar, "Avoiding Litigation After a Reduction in Force," my colleague, Nicole Bogard and I addressed the many aspects of layoffs and how to meet legal requirements while taking care of employees and avoiding legal action. In the webinar, Nicole addresses best practices for establishing ERISA severance plans and 409A compliance and I address the benefits and best practices for creating compliant separation and release agreements. View the webinar in its entirety, here.

Benefits of separation agreements during reductions in force

Why should employers use separation and release agreements in reorganizations or reductions in force scenarios when they could just end the employment of those affected, pay no separation benefits, and move forward? After all, reductions in force and reorganizations are usually motivated by a desire to save costs. If that's the case, why offer money to employees to basically perform no work?

The biggest strategic advantage to offering severance to employees is to mitigate the litigation risk that goes along with multi-employee terminations. The fact is, when employers terminate groups of employees as part of a single rolling action, the potential cost and disruption associated with litigation is enormous -- and will generally outweigh the cost of offering separation packages by a considerable margin.

Moreover, once separation packages are offered and accepted by a large percentage of the affected population, it allows the business to move forward and focus on its strategic objectives without the distractions associated with litigation. Any business leader who has been involved in fighting cases in court knows how time consuming and cumbersome it can be.

Release agreements are also an opportunity to remind affected employees of their obligations to the company under restrictive covenant agreements. And when I say restrictive covenant agreements, think non-competes, non-solicits, non-recruits, and non-disclosure agreements. Similarly, the new consideration that the employer is providing as part of the separation agreement could also provide a basis for requesting new covenants from the departing employees if they don't already have them or if what they have isn't optimal to protect the company's interests.

And finally, these kinds of events are unpleasant actions that affect a lot of people. Offering severance benefits is a good way to soften the blow, help folks bridge the gap, and help make the company appear to be more compassionate and more caring toward its employees.

Best practices for creating valid enforceable agreements

There are a few things that you want to include in almost every instance and then there are things that you cannot include. First, you want to keep your agreement broad to cover any and all claims, demands, causes of action, etc. You also want it to cover known and unknown claims. If an individual doesn't know that they might have a claim for something that occurred during the time they were employed by the company, they may discover it later. Make sure you include all possible claims and that you're capturing everything that might have occurred during the employment relationship. Use words like "including but not limited to" when you're listing out the statutes or causes of action that are included within the waiver.

Second, you want to encompass all claims that can be waived under applicable law – federal, state, and local laws. Recently we've seen a proliferation of laws being enacted that affect the employment relationship, such as paid sick leave, that are being enacted on the municipality level or local levels. Therefore, it's important to make sure you're capturing claims that fall under laws at every level.

Third, most good separation agreements include a non-exhaustive list of common law and statutory claims and encompass age discrimination claims for those in the age-protected category -- age 40 and older under federal law. An enforceable release must specifically reference the Age Discrimination in Employment Act.

What to include and not include in a separation and release agreement

Be sure to include a catch-all statement that makes it clear that anything that can't be waived by law is not included in the waiver or release. Some examples of things that can't be part of a separation and release agreement include unemployment benefits, workers compensation claims, claims that cannot be waived by law, and any provision precluding the employee from filing an administrative charge or complaint or from participating in a government investigation.

It's a tricky framework to navigate and there have been examples of employers who overreached in their separation agreements and had problems with associated administrative agencies. Most recently, we saw an example of a company that settled a litigation with the FCC for hundreds of thousands of dollars as a result of it not being clear in their separation agreements that employees could pursue Dodd-Frank Act claims and go to the FCC with whistleblower type allegations.

What about wage-hour claims? The easiest thing to do in addition to including the statutes in the agreement and referencing them, is to incorporate something in the agreement that says, "I agree that I've been paid all wages owed," or words to that effect. And that means that if former employees come back and later challenge the agreement, then you've got that acknowledgement that they were properly paid and that makes it hard for them to pursue those claims as a practical matter.

Provisions that should be included:

  • Acknowledgement of non-waivable claims

    • Wage and others
  • Knowing and voluntary acknowledgement

    • Guard against claims of coercion
  • Non-admission clause

    • Denies any wrong-doing
  • Severability clause

    • Keeps each provision of the agreement separate
  • Age discrimination claims
  • Human rights statutes as required by states
  • Tax indemnification
  • No-rehire
  • Assignment to successors or new owners of the business
  • Non-disparagement and confidentiality

Compliance with ADEA and OWBPA – age discrimination acts

The OWBPA (Older Workers Benefit Protection Act) requires that the release be knowing and voluntary in order for it to be valid for purposes of federal age discrimination claims. In addition, the employer must make certain disclosures in a group termination, which includes reductions in force, in order for the release to be considered knowing and voluntary.

Knowing and voluntary requirements for agreements under the OWBPA must:

  • Be in writing and written in language that the average person can understand.
  • Make a specific reference to waiver ADEA claims.
  • Provide for adequate consideration. (Things that you're giving up as the employer that the employee is not already entitled to)

    • Severance payments
    • Outplacement services
    • Benefits continuation
  • Specifically advise the employee in writing to consult with counsel before signing

    • Or at least provide them the opportunity to do so and an acknowledgement that they've had an opportunity to do so.
  • Provide time for consideration

    • At least 21 days for single terminations
    • At least 45 days for group terminations
  • Provide a seven-day period for the employee to revoke the agreement after signing.
  • Advise the employee that the waiver does not apply to claims arising under the ADEA after the date the agreement is signed.

Although employers don't have to incorporate all of these elements into agreements for everyone, they must include them for individuals 40 years of age, or older. However, many employers include certain of these elements, and in some states, all of them for every employee. Doing so gives rise to an argument that the waiver was knowing and voluntary and helps to overcome any argument that there was coercion or a situation where the employee was forced to sign the agreement without having the opportunity to consult with a legal advisor.

OWBPA disclosure obligations only have to be used in group terminations of two or more employees. The purpose of this disclosure, or notice provision, is designed to convey information about how and why the decisions were made and the ages of those who were selected and not selected with a view towards providing the person executing the release information that will help him or her decide whether he or she wants to waive age discrimination claims. In other words, it paints a picture of whether people in the age-protected category were selected at a higher rate than people who are outside that category.

Common questions about age discrimination provisions

Q: Does it apply to voluntary incentive programs or voluntary early retirement programs?

A: Yes, it does. Although in many exit incentive programs, those nearing retirement are sometimes specifically targeted through the program. That's permissible in that context because those programs are voluntary and participation is voluntary. It's not an involuntary termination plan.

Q: What are the required disclosures that you have to make?

A: The employer must provide the over-40 employee with detailed information about the reduction in force. Specifically, the employer must disclose in writing the decisional unit, which is the class unit or group of individuals covered by the exit program, and the eligibility factors for the exit program.

Q: How should individuals be listed?

A: Here's an example: An employer describes eligibility as all persons in the construction division. But some courts have said that doesn't tell you anything and that eligibility factors need to be job related criteria, such as performance or experience or seniority, that the employer relied on in deciding who to terminate.

There's some risk if you're overly vague in your approach on what the eligibility factors are. Be sure to include job titles and ages of all individuals eligible who are selected for the program. That way, everybody who receives the notice can see which jobs are affected and the ages of the people who are selected and not selected without identifying anyone by name.

One thing to note is that state law requirements can impact how this works. During the webinar, I go into detail about the differences in state law. To view the webinar in its entirety and to learn about ERISA and 409A from Nicole Bogard, click here.

Ben Briggs is a Partner in the Labor & Employment Department of Seyfarth Shaw LLP and serves as Co-Chair of the Firm's Workplace Safety and Health (OSHA/MSHA) Practice Group. His practice focuses on employment-related litigation and compliance counseling involving federal and state statutes that govern employment discrimination, harassment and retaliation, wage and hour issues, employee leave issues and workplace safety and health (OSHA).

Originally published by Rise Smart

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions