Employee Separation Agreements - A Refresher (The Sequel)

LR-Conference-People-Close-up-hands-on-tableIn our last post on this topic, we reviewed the essential elements of a valid employee separation agreement that includes an employee’s release of claims against the employer (i.e., the agreement must be made knowingly and voluntarily, and the employee must receive consideration for giving the release). We also reviewed the specific requirements of the Older Workers Benefit Protection Act (“OWBPA”) for a valid release of actual or potential claims under the Age Discrimination in Employment Act, applicable to employees over 40 years of age. Now, we’re going to discuss the special rules that apply when an employer offers a separation package to a group of employees, rather to a single departing worker.

 

Q:        Suppose we’re implementing a reduction in force, and we want to offer a separation package to a group of employees. Are there special rules for that situation?

A:        If you want those employees to waive claims under the Age Discrimination in Employment Act, yes. When an employer requests a release “in connection with an exit incentive or other employment termination program offered to a group or class of employees,” the law affords more protection to the employees than in the individual situation. In the first place, the employees must be given 45 days (rather than 21 days) in which to consider the agreement. Moreover, in addition to the other requirements under the OWBPA, the employer must provide the employees with certain information, which is intended to allow them to make at least a preliminary determination whether the program discriminates against older workers. The required information includes:

  • the definition of the class, unit, or group covered by the program;
  • eligibility factors for the program;
  • applicable time limits (e.g., in an exit incentive program, the date by which the employee must elect to participate)
  • the job titles and ages of all individuals eligible or selected for the program;
  • the job titles and ages of all individuals in the same job classification or organizational unit who are not eligible or selected for the program.

 

Q:        Do these rules apply to both voluntary and involuntary termination programs?

A:        Yes.

 

Q:        We have been gradually restructuring our business over the course of many months. We have let several employees go, and in every case we have offered a separation package. Is that a “program”?

A:        Maybe. Here is how the OWBPA regulations (find them here) define a “program:”

The question of the existence of a “program” will be decided based upon the facts and circumstances of each case. A “program” exists when an employer offers additional consideration for the signing of a waiver pursuant to an exit incentive or other employment termination (e.g., a reduction in force) to two or more employees. Typically, an involuntary termination program is a standardized formula or package of benefits that is available to two or more employees, while an exit incentive program typically is a standardized formula or package of benefits designed to induce employees to sever their employment voluntarily. In both cases, the terms of the programs generally are not subject to negotiation between the parties.

 

So a “program” may exist whenever a separation package is offered more or less simultaneously to “two or more employees,” and although the package is “typically” standardized, individual negotiations don’t necessarily negate the existence of a “program.” If there is any question whether a particular series of terminations constitutes a “program” under the law, it is safest to assume that the “program” rules apply.

 

Q:        What if the parties negotiate over the terms of the agreement during the 21-day (or 45-day) period that the employee has to consider the agreement? Does the clock start over?

A:        “Material” changes restart the period. “Immaterial” changes don’t. The parties may agree that any changes, whether material or immaterial, do not restart the period. The employee may sign the agreement before the 21-day or 45-day period expires, provided the choice is voluntary and not coerced in any way. (For example, the employer may not offer better terms to employees who sign the waiver sooner.) This is why employee separation agreements almost always have a provision in which the employee acknowledges that he or she was afforded 21 (or 45) days to consider whether to accept the agreement, and that if he or she signed the agreement before that period expired, it was done knowingly and voluntarily.

 

Q:        I don’t understand what information I’m required to provide the employees when a “program” is involved.

  1. You’re not alone. The OWBPA regulations on this point are fairly lengthy and detailed, so for a full explanation you may need to read them (here). But here is an example of the information that would be provided, usually as an exhibit to the separation agreement, using a hypothetical sales force of 25 people, of whom 20% are to be let go based purely on revenue production:

 

Class or group covered by the program: All Salespeople

Eligibility factor: Sales Volume

Time Limits: Not Applicable

Age                             Number selected         Number not selected

24                                1                                  1

27                                0                                  1

30                                0                                  2

35                                0                                  2

36                                1                                  4

39                                0                                  2

42                                1                                  4

47                                1                                  4

51                                1                                  0

From this information a person could derive whether employees 40 and over were disproportionately represented among the group selected for discharge, which is the point of the requirement.

 

Q:        Other than a provision for separation pay and the employee’s release of claims, what other provisions are commonly included in employment separation agreements? I’m thinking of things like non-disparagement clauses and promises to keep information confidential.

A:        We’ll have some comments about other common separation agreement provisions in the final installment of this series, coming soon.

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