New Jersey Employment Lawyer Blog

Often, companies offer money or other benefits to employees who they have laid off or fired, as part of a severance agreement or separation package. Most severance agreements require you to waive your employment law rights before you can receive those benefits. In a recent case, Gregory v. Derry Township School District, the Court of Appeals for the Third Circuit ruled that an employee waived her right to bring a discrimination claim against her employer because she signed a Separation Agreement and General Release, even though she only had 15 minutes to review it before she signed it.

The Third Circuit is the federal appellate court that handles appeals from the District of New Jersey. It ruled that when deciding whether an employee had waived his legal rights, a Court should look at the totality of the circumstances including:

1. How clear and specific the language of the release is;
   
2. The employee's education and business experience;
   
3. How much time the employee had to consider the release before signing it;
   
4. Whether the employee knew or should have known his legal rights when he signed the release;
   
5. Whether the employee was encouraged to or actually received advice from a lawyer;
   
6. Whether the employee had an opportunity to negotiate the terms of the separation agreement; and
   
7. Whether the employee received any additional benefits for signing the release.

Applying those factors, the court found that public school teacher Rhauni Gregory could not bring a race discrimination claim against her former employer because the Separation Agreement and General Release she signed included a waiver of all claims arising out of her employment. Ms. Gregory claimed she was forced to resign from her job after her supervisor gave her unfavorable performance evaluations and placed her on an oppressive "intensive assistance track" because she is African-American. However, the Third Circuit found Ms. Gregory had waived the right to bring her national origin discrimination claim because she signed a valid release. It found that the release Ms. Gregory signed was valid even though she signed it within 15 minutes after it was provided to her.

In reaching that conclusion, the court considered the fact that Ms. Gregory's union representative had negotiated the terms of the resignation with the school district. It also considered the fact that, under the separation agreement Ms. Gregory is entitled to receive medical benefits for herself and her family through the end of the year, and a positive job reference letter. She would not have been entitled to either of those benefits if she had not signed the separation agreement.

The Third Circuit's opinion in Gregory is unpublished, meaning it is not a binding legal precedent. However, it is an excellent example of why it can be critical to have an experienced employment lawyer review your severance agreement before you sign it. If you have been offered a severance package from your employer in New Jersey or New York, you should consider meeting with an employment attorney before you sign away important employment law rights.

Many companies offer severance pay to certain employees who they have laid off, downsized, or fired. For example, some companies pay severance to employees who lose their jobs as part of a mass layoff or other reductions in force. Severance is often based on one or two weeks of pay for each year you worked for the company, but the way severance pay is calculated can vary greatly from one job to the next.

Severance pay can help soften the blow of losing your job. However, most severance agreements require you to sign away important legal rights. As a result, it is very important to make sure you understand all of the terms of your severance offer before you agree to it.

In New York and New Jersey, there is no legal obligation for companies to pay any severance to employees. However, if a company has a severance policy, it must follow it. Similarly, if you have entered into an employment contract which entitles you to severance, then your employer must comply with your contract.

What Should I Look Out For Before I Sign a Severance Agreement?

There are many things you should understand before you decide whether to accept a severance offer. Below are some of the most common questions employees have about their severance agreements.

Is my employer offering me enough severance pay?

Perhaps the most common question employees have about a severance offer is whether the employer has offered them "enough" severance. There is usually no simple yes or no answer to that question. However, some important factors to consider include:

What am I entitled to receive if I reject my severance offer?

In some situations, if you reject your severance offer, you will receive nothing. In others, you might be entitled to receive some severance pay even if you do not sign the agreement. Similarly, some companies have policies that entitle you to be paid for your unused vacation, sick, or holday time even if you turn down a severance offer. Others do not.

Has the company offered me everything I am entitled to receive under its severance policy?

In general, a company is required to follow its written severance policy. Under certain circumstances, a company can establish a severance policy by having an established practice of paying severance to its employees who meet certain conditions. It is usually a good idea to make sure your company has included everything you are entitled to receive under its policy or past practice.

Do I have a legal claim against my employer?

Most severance agreements require you to give up all of your legal claims against your former employer before you can receive severance. For example, if you were fired because of your age, race, national origin, gender, disability, religion, or some other unlawful reason, then an employment lawyer may be able to negotiate a better severance package to settle your legal claim. If you sign a severance agreement, you might be waiving your right to sue for discrimination, retaliation, harassment, breach of contract, or any other claims you may have against your former employer.

Is the amount of severance I have been offered reasonable or fair?

Frequently, the amount of severance you have been offered seems unfair or unreasonable, especially considering how long you worked for the company, and how much you have contributed to it. Similarly, your severance offer might not seem fair compared to what your coworkers or peers have been paid in the past.

Unfortunately, companies are not required to be fair or reasonable. If they were, you probably would not have been fired in the first place. However, if your company has not made a fair severance offer, it might be possible for an experienced employment lawyer to negotiate a better severance offer for you.

What rights am I giving up if I accept my severance offer?

Every severance agreement is different, but most require you to waive all of your legal claims against your employer. As a result, it is usually a good idea to talk to an employment law attorney before you decide whether to accept your severance offer. That is one of the reasons why severance agreements usually recommend you consult with a lawyer before you sign it.

Severance agreements often require you to give up other important legal rights. For example, they might require you to agree not to compete with your former employer, or not to solicit your former customers for a period of time. If your severance agreement contains a non-compete or a non-solicitation provision, then you should consider how that provision might effect your ability to find another job, or open a new business, before you decide whether to accept the severance offer.

You should make sure you understand and agree to all of the provisions in your severance offer before you sign it. This is yet another reason why it is usually a good idea to speak with an employment lawyer before you sign a severance agreement.

On July 15, 2009, the United States Equal Employment Opportunity Commission (EEOC) issued guidance to employees who are offered severance agreements that include releases of employment law claims after they have been laid off or otherwise fired. More specifically, the EEOC's guidance answers questions employees might have regarding severance agreements that require them to waive their rights under employment laws such as Title VII of the Civil Rights Act (Title VII), which prohibits gender discrimination, race discrimination, national origin discrimination, and religious discrimination; the Americans with Disabilities Act (ADA), which prohibits disability discrimination; and the Age Discrimination in Employment Act (ADEA),which prohibits age discrimination. While it is focused on federal claims, the guidance is also relevant to claims under state laws, such as the New Jersey Law Against Discrimination (LAD), the New Jersey Conscientious Employee Protection Act (CEPA), the New Jersey Civil Rights Act (NJCRA), and the New York Human Rights Law (NYHRL).

A significant portion of the EEOC's guidance discusses what is required for a waiver in a severance agreement to be valid. Specifically, waivers (1) must be knowing and voluntary, (2) must offer the employee some consideration, meaning a benefit the employee would not otherwise receive, and (3) must comply with applicable state and federal laws. The EEOC notes that, to determine whether an employee knowingly and voluntarily waived the right to sue for employment law claims like discrimination, retaliation, or harassment, courts generally consider factors such as:

1. Whether the severance agreement is clear and specific enough that the employee understands it, considering his or her level of education and experience;
2. Whether the severance agreement was the result of fraud, duress, undue influence, or other improper conduct by the employer;
3. Whether the employee had sufficient time to read and consider the severance offer;
4. Whether the employee consulted with an attorney, or the employer encouraged the employee to consult with an attorney, before accepting the severance offer; and
5. Whether the employee had input into negotiating the terms of the severance agreement.

The EEOC guidance also discusses the special minimum requirements for a release to waive age discrimination claims under the ADEA. Those requirements come from a 1990 amendment to the ADEA, called the Older Workers Benefit Protection Act (OWBPA). The OWBPA contains seven requirements for a valid waiver of federal age discrimination claims:

1. The waiver must be written clearly, so the employee can understand it;
2. The waiver must specifically refer to claims under the ADEA
3. The waiver must advise the employee to consult a lawyer before accepting it;
4. The waiver must give the employee at least 21 days to consider the severance offer;
5. The waiver must provide the employee at least seven days to revoke the agreement after he or she signs it.

The employee must not be required to waive the right to pursue any violations of his or her future rights under the ADEA, meaning that the employee cannot waive any violations of the ADEA that occure after the effective date of the waiver; and The employee must receive additional consideration, typically severance pay or benefits, that he or she would not be entitled to receive otherwise.

A waiver under the ADEA is also unenforceable if the employee signs it as the result of the employer's fraud, undue influence, or other improper conduct, or if the employee signed the release because it contains a material mistake, omission, or misstatement. The EEOC guidance discusses additional requirements of the OWBPA that apply to mass layoffs, reductions in force, early retirement incentive plans, and other employer exit incentive programs and termination programs. For example, employers must give employees at least 45 days, rather than 21 days, to consider a waiver of the right to sue for age discrimination under the ADEA if they are terminated as part of a mass layoff or reduction in force. Employers also must provide employees who are impacted by a mass layoff or reduction in force with a list of the job titles and the ages of all individuals in their "decisional unit" who were eligible for, selected for, and not selected for, inclusion in the mass layoff or reduction in force. Depending on the circumstances, the relevant decisional unit can be the entire company, a division, a department, the employees reporting to a particular manager, or the employees in a particular job classification. The EEOC guidelines contain a checklist of things employees should do if they are offered a severance agreement, including that they should:

1. Make sure they understand the severance agreement;
2. Check for deadlines in the agreement, and act promptly;
3. Consider having an attorney review the severance offer; and
4. Make sure they understand what they are giving up in exchange for the severance benefits.

Although not specifically discussed by the EEOC, it is often possible for an employee who has been laid off to negotiate additional severance benefits, or to otherwise improve the terms of their severance offer. You should consider meeting with an experienced employment lawyer in your area if you have been laid off or otherwise fired and are hoping to enhance your severance package, or if you need help understanding the severance agreement and the important rights you may be giving up if you sign it.