In periods of economic uncertainty, layoffs can become more common. Employees, irrespective of their experience, may find themselves navigating a difficult job market. During these times, some might consider accepting a separation agreement, also referred to as a severance agreement or package, as a viable option. However, comprehension of the severance package and the potential rights being relinquished is crucial before committing.
What is a Separation Agreement?
A separation agreement is a contractual arrangement offering consideration in exchange for relinquishing certain legal claims against the employer, and might involve additional restrictive clauses. Connecticut, New York, and other U.S. jurisdictions do not have a mandated severance amount. Surveys suggest that U.S. employees might receive between 1.23 to 2.76 weeks of severance for each year of service in voluntary separations, and 1.44 to 3.04 weeks in involuntary separations. Those in senior-level roles, such as corporate executives, may have access to extended severance periods.
Determining a Severance Package
Before deciding on a severance package, it is vital to fully understand the offer, encompassing compensation, benefits, and insurance. Employees in industries with compensation forms beyond base salary, like stock options or bonuses, must verify entitlement to such benefits. Gathering information about employer welfare plans, health plans, and vacation policies, as well as structured bonus and stock options (both vested and unvested), is crucial. A package offering only pre-existing entitlements might lack adequate consideration.
Consideration refers to receiving something of value beyond what one is entitled to, in exchange for giving up certain rights. This typically includes additional pay or extended benefits. Separation agreements might also include varied compensation forms such as commission, bonus, deferred compensation, accrued vacation time, stock options, profit sharing, or unpaid expenses.
Release of Legal Claims
Separation agreements often involve releasing various legal claims against the employer, potentially including claims related to age, race, national origin, gender, disability, and religion. These rights, protected under the ADEA, ADA, ERISA, and Title VII of the Civil Rights Act, should be carefully considered before relinquishing.
Restrictive Clauses
Typically, separation agreements may encompass non-competition, non-solicitation, as well as confidentiality and non-disclosure clauses. A non-competition clause prevents an employee from entering a similar profession in competition with the employer. Non-solicitation clauses prevent recruiting the employer’s clients, customers, or staff for personal or competitive gain. Confidentiality clauses bar disclosure of trade secrets. Despite absence of specific contracts, these obligations may still apply under state and federal laws.
Continuation of Insurance Benefits
Separation agreements often cover the continuation of insurance benefits, as mandated by the Consolidated Omnibus Budget Reconciliation Act (COBRA). For employers with twenty or more employees, COBRA mandates offering a temporary extension of health coverage under certain conditions. If opting for COBRA, employees may need to fully cover premium costs unless the employer agrees to contribute. COBRA coverage generally extends 18 to 36 months.
Requirements for Older Workers
While general releases of claims in severance agreements are lawful, the Older Workers Benefit Protection Act (OWBPA) outlines additional stipulations for employees aged 40 and over. These include: a clearly worded waiver; acknowledgment of giving up ADEA claims; non-waivability of future claims; provision of extra consideration; recommendation to consult a lawyer; a minimum 21-day review period; and a 7-day revocation period. If part of a reduction affecting multiple employees, a 45-day review and a detailed plan disclosure are necessary. For existing lawsuits, a reasonable review period suffice.
Negotiating a Severance Agreement
Understanding that there is no statutory minimum review time for severance agreements, unless under OWBPA, is crucial. The assumption of a universal 21-day review period applies only to workers over 40. Many employers are open to negotiating aspects of a severance agreement, although there is a risk of withdrawal. Focus might extend beyond monetary compensation to include benefits like extended insurance coverage. Given the complexity and breadth of claims released, consulting an attorney before entering negotiations or signing is highly advised.
Contact Us
If you have any questions regarding separation/severance agreements in Connecticut, or wish to consult an attorney regarding a legal matter, please contact Joseph C. Maya and the attorneys at Maya Murphy, P.C. at (203) 221-3100 or Jmaya@mayalaw.com to arrange a free initial consultation.
