Why Employers Might Want To Have A Seven Day Revocation Period In Severance Agreements
Updated: Mar 2
When terminating an employee, employers will sometimes offer the employee a severance package, which should be conditioned on the employee releasing the employer from all claims - basically promising not to sue the employer.
One of the key factors affecting the enforceability of a severance agreement is whether the waiver of claims contained in it was made by the employee knowingly and voluntarily.
In drafting a severance agreement, one of the first things an employer needs to know is whether the employee is 40 years of age or older. The reason for this is that employees that are 40 or older are protected by the Age Discrimination in Employment Act (ADEA) and the specific requirements of the Older Workers Benefit Protection Act (OWBPA). The OWBPA is a federal law that lists seven factors that must be satisfied for a waiver of age discrimination claims to be considered knowing and voluntary. Among those are that the employee be given a certain amount of time to consider the severance offer and that the employee be given seven days to revoke their signature.
Courts have held that a waiver of claims relating to Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act (ADA), and the Equal Pay Act (EPA) must also be knowing and voluntary. But there is no statute that lays out what exactly "knowing and voluntary" means with respect to these laws - rather courts generally look at the totality of the circumstances to determine whether the employee knowingly and voluntarily waived the right to sue. In the Fourth Circuit, the non-exhaustive list of factors to be considered include:
the employee's education and business experience;
the respective roles of the employer and employee in determining the terms and conditions of the waiver;
the clarity of the agreement;
the time the employee had to study the agreement;
whether the employee had the advice of counsel;
whether the employer encouraged the employee to seek the advice of counsel and whether the employee had sufficient time to do so; and
the waiver's consideration.
Often times when an employee signs a severance agreement on the spot, they later argue that their waiver was not knowing and voluntary or they felt pressured to sign the agreement. A number of court cases have upheld severance agreements signed in that matter when the agreements provided a revocation period, finding that the revocation period helps establish that the waiver was knowing and voluntary.
Certainly there are times when you would not want to offer a revocation period. But, especially if an employee may be signing a waiver of claims on the spot, a revocation period can provide a good defense to a claim that the employee was coerced.