Severance Agreements: Friend Or Foe?


A severance agreement is a contract entered into between a departing employee and the employer, by which the employee agrees not to sue the employer for various employment-related actions, and the employer agrees to give some type of extra compensation to the employee (usually money or extended benefits or both). A severance agreement may have any of several different titles, such as severance agreement or severance contract, separation agreement or separation contract, exit agreement or exit contract, but the critical component is the employee's release of potential claims against the employer.

It is important to keep in mind that in order for a release of liability in a severance agreement to be enforceable, the employee must receive consideration in exchange for the release. This consideration may consist of money, benefits, or both. Without payment of consideration to the employee, the agreement will not be enforceable. There are also several specific provisions which must be included in the severance agreement in order for the release of liability to be enforceable to prevent claims under the various statutes.

Assuming consideration is paid to the employee, and the severance agreement is properly written, an employer can be released from any liability under: (1) The federal Civil Rights Act of 1964; (2) The California Fair Employment and Housing Act (which prohibits discrimination based upon race, religion, sex, age, color, national origin, disability, medical condition, pregnancy, marital status and sexual orientation); (3) The California Age Discrimination Act; (4) The federal Age Discrimination in Employment Act; (5) Section 503 of the federal Rehabilitation Act of 1973; (6) The federal Americans with Disabilities Act; (7) The federal Fair Labor Standards Act (including the Equal Pay Act); (8) The California Constitution; (9) The California Labor Code, including Labor Code Section 1197.5, but excluding ยง 206.5 (right to wages earned); (10) Laws established by the California Department of Labor Standards Enforcement; (11) The federal Family and Medical Leave Act; (12) The California Family Rights Act; (13) The federal Worker Adjustment and Retraining Notification Act; and (14) The Employee Retirement Income Security Act.

Employees should be extremely cautious in signing any documents which the employer asks them to sign at the time of termination or resignation, and should consult an attorney before signing any documents which looks like it might be a release or waiver of any of the employee's potential claims.