Q: Can a one-size-fits-all separation agreement expose a company to risk?

A: Yes, using a uniform separation agreement may be efficient, but it can create legal exposure if not carefully tailored. Below are key considerations that will help employers ensure their separation agreements are legally compliant. 

1. Individuals Aged 40-plus Trigger Additional Requirements

If the impacted individual is 40 years or older, the Older Workers Benefit Protection Act of 1990 (“the OWBPA”), which amended the Age Discrimination in Employment Act of 1967, applies.

The OWBPA requires that a waiver be “knowing and voluntary,” which requires, at a minimum: 

• Clear, written, plain language
• Geared to the individual’s level of understanding, accounting for their level of comprehension and education
• No technical jargon or long, complex sentences
• No misleading statements or misinformation
• Explicit reference to the Age Discrimination in Employment Act in connection with rights or claims being waived
• No waiver of future rights or claims
• Recommendation to consult with an attorney before executing the agreement
• At least 21 days to consider (or 45 days if a group layoff)
• 7-day revocation period after signing the agreement
• Additional consideration (e.g., something of value) beyond what the individual is already owed

Tips:

• The 7-day revocation period cannot be shortened.
• The employer should pay consideration until after the revocation period expires.
• The individual may sign before the 21 or 45-day time period but only if voluntary and without inducement.
• Final compensation, business expenses the employer owes the individual, or accrued paid time off benefits legally owed to the individual do not count as consideration.

2. Group Layoffs Involving At Least One  Employee Aged 40-plus Require Additional Disclosures

For company layoffs through “an exit incentive program” or “other termination layoff program” consisting of two or more employees (where at least one is 40-plus), the OWBPA imposes additional requirements:

• The review period increases to 45 days.
• Employers must provide detailed disclosures containing: the decisional unit; eligibility factors and selection criteria; job titles and ages of all individuals in the decisional unit selected for layoff; job titles and ages of all individuals in the decisional unit not selected for layoff.

Tips:

• These disclosure requirements are in addition to the OWBPA requirements for a knowing and voluntary waiver in No. 1.
• The decisional unit is the class, unit, or group of employees from which the employer chose who was or was not selected for the program.
• Careful consideration should be given to the OWBPA notice to ensure compliance with the applicable federal law. 

3. State and Local Laws Where Employees Work Varies

State laws and local ordinances have varying protected classifications in addition to those protected by federal law (e.g., sex, pregnancy, age, race, color, national origin, ancestry, religion, disability, genetic information). 

• For example, the Illinois Human Rights Act affords protection to individuals based on their marital status, arrest record, unfavorable military discharge, family responsibilities, and reproductive health decisions. In Michigan, individuals are afforded protection based on their marital status, height, and weight. Indeed, many states, such as California, Colorado, New York, and North Dakota offer protection for lawful, off-duty conduct. Other states afford protection for off-duty cannabis use, off-duty tobacco use, and political activity/speech. Employers should ensure the waiver/release addresses all applicable protected classes, which may be accomplished by a general catchall statement such as “all other classes protected under applicable state or local laws.”
• Certain states have enacted legislation governing separation agreements. The Illinois Workplace Transparency Act (the IWTA) requires valid, bargained-for consideration in exchange for a confidentiality provision separate from consideration supporting a waiver/release of claims. Under the IWTA, an employer may not unilaterally include a statement that confidentiality is the employee’s preference or include confidentiality provisions related to “future or prospective concerted activity related to workplace conditions.” The IWTA also requires safeguards for confidentiality provisions, including written agreements, voluntary preferences, notice of the right to consult counsel, and 21-day review/7-day revocation periods. New York has enacted similar legislation.
• States, such as Illinois, California, Colorado, Washington, New York, Maine, and Oregon limit the use of confidentiality and non-disparagement provisions to prevent individuals from concealing unlawful employment practices. 
• Consideration may be given to naming state and local laws to be included in the release/waiver, in addition to the typical anti-discrimination laws, which can be implicated in an employment relationship. These may include biometric information privacy laws, data breach laws, fair debt and credit reporting acts, and leave laws.

Several states (e.g., California, Colorado, Illinois) have enacted legislation restricting or regulating choice of law and forum selection provisions to ensure employees are protected by the laws of the state where they work and not required to travel to a forum where they have no connection to litigate a dispute. Washington state has enacted such protections in the context of adjudicating noncompetition covenants and nondisclosure or nondisparagement provisions.

4.  Restrictive Covenants Must Be Carefully Tailored

An employer may desire to include more robust provisions, such as non-competition, nondisparagement, and confidentiality provisions (drafted in accordance with applicable state and federal law) based on the individual’s position or access to confidential information.

Tip:

• In addition to state laws enacted to prevent overreaching confidentiality and non-disparagement provisions, the National Labor Relations Act (NLRA) also restricts these provisions insofar as they interfere with individuals' ability to engage in protected concerted activity. The NLRA’s protections in this regard apply to both unionized and non-unionized, non-supervisory employees and applicants.     

5. Existing Agreements Can Affect the Separation Agreement 

Prior agreements between the employee and the company may impact the separation agreement. Prior agreements may include an employment agreement, equity agreement, work-for-hire agreement, non-competition agreement, or arbitration agreement.  

Tips:

• The “complete agreement” (or integration provision) of the separation agreement may need to address prior agreements, and if appropriate, confirm the prior agreements remain in effect.
• Ensure the agreements have consistent provisions (e.g., arbitration provisions, forum selection clauses, choice of law, etc.).
• Use the separation agreement to update or amend prior agreements that may contain unenforceable provisions.

6. The Circumstances of Separation Shape the Agreement

A separation agreement for a current employee: 

• should clarify the employee’s last day worked
• include the requirement that the employee not sign the agreement until after the last day worked 
• should distinguish between the employee’s final compensation and accrued paid time off (if required to be paid by state law) versus the consideration, along with a statement confirming the employee will be paid the former even if the employee chooses not to sign the separation agreement

If a separation agreement is negotiated after the individual engaged in protected activity or asserted a claim, the employer likely wants to address that in the agreement.

7. Severance Practices Should Remain Consistent

Employers should refer to existing policies and practices in place regarding the amount of severance pay (or consideration) offered to impacted individuals. In the absence of such policies, employers should ensure that the amount of severance offered is tied to legitimate, non-discriminatory reasons, such as tenure, position, proximity in time of multiple layoffs/terminations, and perhaps even litigation risk.

Tip:

• Payment of varying amounts of benefits, such as severance (e.g., consideration for a waiver agreement), may provide a basis for a discrimination claim when certain protected classes are paid more generously. This is true even when the employer is not legally required to provide severance. 

8. Special Rules Apply for Union Employees

Offering a separation agreement to a union member requires careful review of, inter alia, the governing collective bargaining agreement and the NLRA. Offering severance to a union member may first require negotiating with the union to avoid a claim of unfair labor practices. Also, the collective bargaining agreement may include agreed-upon selection for layoff, progressive discipline, conduct that constitutes a terminable offense, or formulas for determining severance. Of course, ensuring nondisparagement, confidentiality, and arbitration provisions do not run afoul of the NLRA are also imperative.

It is always best practice to have legal counsel review separation agreements to ensure the unique facts and circumstances and applicable law are considered. Wilson Elser’s national Employment and Labor Team is available for further guidance on implementing individual terminations or layoffs of any size.

This article is for informational purposes only and should not be used in place of seeking legal guidance, nor does it constitute legal advice or the creation of an attorney-client relationship.