When it comes time to terminate an employee or institute a reduction-in-force or layoff, many companies choose to offer severance to help the separated employee transition to future employment. Indeed, the offer of severance pay and/or reimbursement of COBRA costs after separation can be a morale booster and an excellent form of “protection” from future lawsuits if the agreement that is provided to the separating employee is legally drafted and properly delivered at termination. However, the opposite is true if the language of the agreement is found to be impermissible under California legislative requirements. Cook Brown attorneys continue to see the use and reuse of “form” separation/severance agreements containing outdated, unenforceable provisions. Below are some key updates that HR and executives should be aware of in distributing severance agreements to departing employees.
Non-Disclosure Provisions
California Govt. Code Sec. 12964.5 makes it “unlawful” for an employer to include in a separation agreement any provision that prohibits the disclosure of information about unlawful acts in the workplace. The law goes on to state that a non-disparagement or other contractual provision that restricts an employee’s ability to disclose information related to conditions in the workplace shall include, in substantial form, the following language: “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”
These provisions were added in response to the MeToo movement and concerns that non-disclosure provisions were silencing employees who had suffered unlawful acts. Severance agreements must now be scrutinized to avoid including certain non-disclosure/non-disparagement language that can run afoul of this law. It is however still permissible to prohibit disclosure of the amount of the severance payment and to include provisions to protect company trade secrets, proprietary information, or other confidential information that does not involve unlawful acts in the workplace.
Right to Consult an Attorney
Also, separating employees must be specifically notified per the agreement that they have a right to consult an attorney regarding the agreement and will be provided with a “reasonable time period” (not less than five business days) in which to do so. Govt. Code 12964.5(b)(4). In the past, a consideration period was only required if an employee was waiving Age Discrimination claims under the Older Worker Benefit Protection Act (OWBPA). Now, a general release or waiver of claims in a severance agreement for anyone of any age might be arguably void if the 5-day notice period is not spelled out in the agreement.
OWBPA Requirements for Employees 40 or Older
Speaking of the OWBPA, most employers know that in order to obtain a release or waiver of claims from someone 40 or older under the Age Discrimination in Employment Act (ADEA), a severance agreement must provide, among other things, a 21-day period to “consider” the agreement and a 7-day period to “revoke” the agreement after signature. This is still required notwithstanding the 5-business day rule set forth above under the Govt. Code. Unfortunately, those distributing severance agreements do sometimes forget there are different consideration/revocation rules and notices required for employees who are provided severance agreements in connection with a group lay-off or termination.
Group Lay-off or Termination
What is a group lay-off/termination? Generally, when more than one employee is terminated within a six-month period as part of the same decision-making process, it will be considered a group termination. In that case, the company must extend the consideration period to 45-days and provide each employee, age 40 or older, with a detailed notice containing specific information about the titles and ages of both affected and unaffected employees in the work group. 29 CFR § 1625.22. This can be daunting to even the most sophisticated HR professionals and failing to follow the OWBPA requirements can result in unenforceable releases.
These are just a few examples of the details that must be reviewed to ensure a severance agreement has the desired effect of buying peace and protecting the company from possible future claims. Don’t terminate or lay off another employee without reviewing these critical agreements for compliance.
