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What employees over 40 should know about severance agreements

On Behalf of | Apr 22, 2024 | Employment Law

Age discrimination in the workplace can take multiple forms. It’s not always as obvious as people being mocked for how old they are or a lack of promotions for those over 40. Many employers are smart enough to avoid clear violations of the federal Age Discrimination in Employment Act of 1967 (“ADEA”) and state law.

One way the employers “weed out” older employees (who are often among the highest paid simply because of their longevity with a company is to offer them severance packages with monetary and other benefits that are difficult to pass up if they “retire.” If a middle-age or older employee is frustrated by the lack of greater opportunity with an employer or maybe just ready for a change, a good severance package can give them a financial cushion as they decide what they want to do next.

It’s crucial to read the fine print in the severance agreement and anything else that your employer asks you to sign as you prepare to leave. Some severance agreements include an ADEA waiver that prevents them from suing for age discrimination in the future.

How the OWBPA offers protection to employees who sign a severance agreement

Because so many employees were signing severance agreements that included these waivers, the Older Workers Benefit Protection Act (OWBPA) was enacted. While it doesn’t prohibit their use, it does place restrictions on them. For example, in order for an ADEA waiver to be valid:

  • The waiver must be in language that is understandable to the average person.
  • Employees must be allowed a 7-day “look-back” period to change their mind after signing a severance agreement.
  • Employees must be given at least 21 days to decide whether they want to sign an agreement and encouraged to get legal guidance. If it’s a group layoff, they must get at least 45 days.

In addition to these restrictions under the OWBPA, the Equal Employment Opportunity Commission (EEOC) prohibits employers from requiring a former employee who later unsuccessfully challenges an ADEA waiver in court to pay back money already paid under the severance packages. 

If you’ve been presented with a severance agreement, it’s important to take advantage of the time you have to think about it and get a thorough legal review of it. This can help you make the best decision for you and your family.