What NOT to Do in Severance Agreements With Employees Over 40 in the U.S.

Termination of employment is a natural part of business, and many employers offer severance packages to ease the transition for outgoing employees. However, older employee severance agreements over 40 in the United States must meet specific legal requirements under the Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act (OWBPA). These laws ensure that any waiver of age discrimination claims is knowing and voluntary.

If you’re using a one-size-fits-all template for severance agreements, you may be putting your company at risk. To help employers navigate these legal obligations, we’ve outlined the key dos and don’ts of drafting severance agreement provisions for older employees over 40.

The ADEA is a federal law designed to protect employees over the age of 40 from workplace discrimination based on age. This law applies to businesses with 20 or more employees and prohibits discrimination in employment processes such as hiring, promotions, wages, and terminations. 

When it comes to ADEA compliance in severance agreements, it ensures that older workers are not coerced into signing away their rights without proper consideration.

The OWBPA is an amendment to the ADEA that specifically addresses severance agreements. It sets forth strict requirements to ensure that any waiver of age discrimination claims is done voluntarily and with full understanding. Under the OWBPA, severance agreements must meet certain criteria to be considered legally enforceable. Employers are obligated to draft a version of a severance agreement that meets the standards set by the OWBPA. 

The OWBPA is used in the following two instances:

1. Involuntary departure: When the termination of employment is against the employee’s will, usually due to reductions in force (RIFs).
2. Voluntary departure: When the employee leaves employment on their own accord for reasons such as early retirement or exit incentive plans.

The termination of employment will only be valid once the terms of the severance package match the standards set by the OWBPA.

To comply with the ADEA and OWBPA, employee severance agreements over 40 must include the following elements:

• The severance agreement must be in writing and clearly state its terms.
• It must be drafted in clear and understandable language that the employee can easily comprehend.
• The agreement must explicitly mention that the employee is waiving their rights under the ADEA.
• Employers must inform employees in writing that they should seek legal counsel before signing.

The OWBPA also mandates that employees over 40 must be given sufficient time to review severance agreements before signing:

• Employees must have at least 21 days to consider the severance agreement.
• If part of a group layoff, employees must be given 45 days to review the agreement.
• After signing, employees have 7 days to revoke their acceptance if they change their minds.

If a severance agreement does not meet ADEA and OWBPA requirements, the waiver of age discrimination claims may be considered invalid. This means that employees could still file age discrimination lawsuits, and employers could face legal consequences. Courts have consistently ruled that severance agreements must strictly comply with OWBPA standards.

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When negotiating a severance agreement over 40, make sure the age discrimination waiver is written in an easy-to-understand manner. The severance agreement should be straightforward and comprehensible without using any obscure or advanced legal terminology. Employees should be able to comprehend the reason for their termination of employment, as well as their rights entitled by the Age Discrimination in Employment Act (ADEA). 

If you decide to mislead the employee for the purpose of getting them to accept a severance agreement, then you can and most probably will be held legally accountable. So be wary of how you draft your severance agreement provisions for older employees and consult a legal professional if you have any uncertainties.

All severance agreements for employees over 40 must specifically refer to their rights under the Age Discrimination in Employment Act (ADEA). This means directly citing the ADEA in the employee’s severance agreement. 

Failure to reference the ADEA to employees may result in a lawsuit. Therefore, you shouldn’t suppress any key information from the ADEA in order to present a completely transparent and fair severance package to employees.

Every sentence in the severance agreement must be written in plain language, void of any technical jargon. If the employee cannot understand the terms of the severance agreement, they can refuse to sign it.

This can also be construed as a way to mislead the employee. You want to use the simplest language possible to make sure that the employee truly agrees with the agreement and that you are in full legal compliance.

In many cases, employees are pressured into signing the severance agreement without a proper notice period. Under the protection of the ADEA, employees must be given a time period of at least 21 days to consider whether or not they should accept the severance package, and at least 7 more days to revoke the agreement. 

It’s important that the employee signs the severance agreement without any pressure from the employer or third party influences.

You can’t expect the employee to sign and return the severance agreement immediately. Given that the employee has a 21-day consideration period to look over the terms of the severance package, you shouldn’t expect to receive a signature immediately. 

Nevertheless, the employee can accept and sign the severance agreement before the end of this time frame if they want to, but under no external pressure.

Under the Age Discrimination in Employment Act (ADEA), employees have a right to legal advice when negotiating a severance agreement. This means that employers are legally obligated to tell employees about their right to get an attorney. 

To ensure ADEA compliance in severance agreements over 40, employers must advise, caution, and recommend that employees consult an attorney before signing the age discrimination waiver. This ensures that the employee truly understands what they are signing.

Make sure to leave out any fluff and exaggerations when presenting severance agreements to employees. This includes any benefits included in the severance package. While it can be valuable to offer additional benefits like outplacement support in a severance package, it’s important not to exaggerate those severance package benefits for the purpose of obtaining a signed age discrimination waiver.

Severance agreements for employees over 40 must adhere to strict legal guidelines to be valid. The ADEA protects older employees from age discrimination in employment processes like termination, and the OWBPA more specifically ensures that any waiver of age discrimination claims in severance agreements over 40 is knowing and voluntary. 

Employers must carefully draft these agreements to comply with legal requirements for severance over 40, while employees should take the time to fully understand their rights before signing. By following best practices and avoiding common pitfalls, both employers and employees can navigate severance agreements with confidence.

Here are the key takeaways:

• Use clear and simple language in severance agreements.
• Ensure employees understand their rights under the ADEA and OWBPA.
• Allow employees the full required consideration and revocation periods.
• Encourage employees to seek legal counsel before signing.

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Cynthia Orduña

Cynthia Orduña is a Career and Business Coach with a background in recruiting, human resources, and diversity, equity, and inclusion. She has helped 50+ companies around the world hire and retain talent in cities like LA, SF, NY, Berlin, Tokyo, Sydney, and London. test She has also coached over 300 people, from entry to senior levels, in developing their one-of-a-kind career paths, Her work has been featured in publications such as Business Insider, The Balance Careers, The Zoe Report, and more. To learn more you can connect with Cynthia on LinkedIn.