What HR Should Know About Separation and Severance Agreements

Now more than ever, HR professionals need to understand what needs to go in separation and severance agreements when age claim waivers are sought, as age discrimination claims rise.

Employers should understand that when it comes to separation and severance agreements that include waivers of age discrimination, “it requires additional language and time to review if you are terminating an employee who’s 40 or over,” according to Jill Kahn Marshall, an attorney with Reavis Page Jump in New York City. 

Carelessness with language in these agreements or a rushed review process invites a legal mess, she cautioned. The U.S. Equal Employment Opportunity Commission has recorded a surge in charges of age discrimination among workers in the past few years, after nearly a decade of decline, and successful cases often garner high payouts relative to other workplace discrimination claims. 

Here are six questions HR professionals should consider when drafting separation and severance agreements for older employees.

What Laws Apply? 

Two federal laws dictate employers’ actions when firing or laying off older workers: the Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act (OWBPA). 

The ADEA bars employment discrimination against workers who are 40 and older. The law, which applies to employers with 20 or more employees, including federal, state, and local governments, also prohibits retaliation against employees who file age discrimination complaints. 

The OWBPA amendment to the ADEA expanded on these protections with the aim of making it more difficult to waive older workers’ rights through severance agreements. The law outlines requirements for language in separation and severance agreements involving older workers, including that they must be written in accessible language and should inform the employee to consult an attorney prior to signing. 

Many states have their own laws barring age discrimination in employment. Smaller employers should be aware that several states — including Arizona, Colorado, Maine, and Minnesota — apply to employers of all sizes, no matter how small.  

State laws may also provide for different damages than the ADEA, such as liquidated damages or compensation for emotional distress.

Toolkit: Employing Older Workers

Have You Followed the ADEA? 

In order to comply, a waiver of rights and claims under the ADEA must be “knowing and voluntary,” according to Meghan Chrisner-Keefe, an attorney with Wilentz, Goldman and Spitzer in Woodbridge, N.J.

A release must state explicitly that age discrimination claims under the ADEA — refer to the law by name — are being waived in exchange for severance or other relevant benefits, Chrisner-Keefe wrote. It cannot apply to future claims, only existing ones.

The agreement must offer the employee “additional consideration” which must be something the employee isn’t already entitled to: such as severance pay, employer-paid COBRA premiums, outplacement, or accelerated vesting, noted Gennady Litvin, an attorney with Moshes Law in Brooklyn, N.Y. Final wages, accrued paid time off, and vested benefits are already owed.

The agreement must be written in language that is clear — free from technical or legal jargon. 

What Are Review Periods? 

Of all the steps involved in drafting separation and severance agreements with waivers of age discrimination, “the one that typically impacts employers the most is the review period,” according to Marshall.

For an individual ADEA waiver, older employees must be given 21 days to decide whether or not to sign agreements involving waivers of age discrimination, Marshall explained. In the case of a group layoff involving multiple older employees, the time threshold for the evaluation period extends to at least 45 days under the OWBPA.

After that window, employers must then allow for a seven-day revocation period, which leaves room for employees to change their minds and pull back their acceptance of the agreement.

These review periods are a common source of snags for employers crafting separation and severance agreements, according to Litvin. 

Any material changes to the final agreement mean that the consideration period resets, unless the parties agree otherwise, he added.

Whether or not the employee wishes to take the full period to evaluate the agreement does not change the employer’s obligations, Litvin cautioned. 

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Must You Instruct Employees to Consult an Attorney? 

To reiterate, for a severance or separation agreement to be valid under the OWBPA, it must include language directing employees to consult an attorney before signing. 

Several states are moving toward requiring broader attorney consultation notices for severance agreements more generally, Litvin noted, saying that multistate employers should keep an eye on these developments alongside the federal baseline.

“Employees challenging a waiver almost always argue they were rushed, and evidence of pressure is what makes that argument work,” he added. 

Must the Ages of Laid-Off Employees Be Disclosed?

HR professionals should be aware that when an employer offers severance or other consideration to two or more employees in connection with a group termination or exit incentive program and seeks a waiver of ADEA claims, the OWBPA requires written disclosures identifying the decisional unit, the program’s eligibility factors and time limits, the job titles and ages of employees eligible or selected for the program, and the ages of employees in the same job classification or organizational unit who were not eligible or selected.

The disclosure is another area that tends to trip up employers, according to Litvin. While many employers mistakenly think they only need to list the ages of employees being let go, “the disclosure covers everyone in the decisional unit, selected or not,” he cautioned.

Should You Use AI Tools to Draft Agreements?   

While Marshall acknowledged that large language models such as Claude and ChatGPT are being widely used across the corporate world to draft severance or separation agreements with waivers of age discrimination claims, she would not recommend using them to draft such sensitive agreements. 

Toolkit: Artificial Intelligence in the Workplace

If you use artificial intelligence to produce a first draft, an attorney should review the final documents, which is also a best practice when drafting these agreements on your own, Marshall noted. 

Anytime you’re asking employees to waive possible claims, “it’s always smart to have a lawyer look over them,” she said. These agreements are “not to be taken lightly.”

Taylor Telford is a freelance writer in Washington, D.C.