Following the recent downturn in oil prices, the economy has forced many companies in Texas to cut costs (including labor costs). Part of the difficult layoff process can include determining whether to offer departing employees a severance package. So what do employers need to know when considering and drafting severance agreements?
1. Severance agreements are not always required. A severance payment is generally not mandatory, unless otherwise obligated under another agreement. These obligations may exist in an employment agreement, collective bargaining agreement, or severance plan. However, a company may choose to pay an employee severance at termination, which is most oftentimes in exchange for a release of all claims connected with the individual’s employment.
2. Don’t wait until termination to execute non-competes. Severance agreements often mistakenly include non-competition and/or non-solicitation agreements. But don’t wait until termination to have your departing employees execute these restrictive covenant agreements. Under Texas law, severance benefits (or other monetary compensation) are not valid consideration for non-competition and/or non-solicitation agreements, and such agreements will likely be unenforceable.
3. Exercise care with employees age 40 or older. The Older Workers Benefit Protection Act establishes specific requirements for the release of age discrimination claims. These requirements are aimed at ensuring that an employee age 40 or over has every opportunity to make an informed choice when deciding whether to sign a release of claims. Specifically, a few of the OWBPA requirements include (but are not limited to) a 21-day period to review the agreement; a 7-day revocation period after signing; and a specific reference to the Age Discrimination in Employment Act. If the company is conducting a “group layoff” (i.e. a layoff consisting of 2 or more employees), there are additional requirements. For example, the employees selected for layoff must be given 45 days to review the agreement and must also be provided with information about the age and position of the individuals retained and terminated in the affected “decisional unit.”
4. Watch out for “chilling” provisions. The EEOC and the NRLB have taken the position that certain language in severance agreements can discourage employees from filing charges, participating in investigations, and otherwise engaging in legally protected activities. To avoid the EEOC’s and NLRB’s scrutiny, be sure to carefully draft any confidentiality and non-disparagement provisions in severance agreements. It’s a good idea to insert language into the agreement that clarifies the employee’s right to file a charge and otherwise communicate and cooperate with the EEOC and NLRB.
Keeping these 4 points in mind can help to minimize lawsuits and maximize enforceability of any severance agreement.