The economy of the United States, much like the rest of the world, is cyclical with boom and bust periods. Unfortunately, it appears that we are now entering a bust period as rolling layoffs have begun. This has moved severance packages and agreements back into the headlines, and laid off workers are looking for guidance on whether these agreements are legal. This is what this series of blogs will seek to answer.
Why have severance agreements become more common?
In the past, severance agreements were reserved for high-level employees and executives. However, over the past few years, they have trickled down to nearly every employee who is laid off.
Why? Because many employees gain legal claims through their employment for various reasons, and sometimes, the layoff itself may give the employee a legal claim as well.
For example, if a Los Angeles, California, company lays off their highest-paid employees, the result is that many, if not all, of those employees laid off will be above age 40. This may be a violation of the Age Discrimination in Employment Act. If they lay off their entire Human Resources Department that is mostly, if not entirely female, it may be seen as a sex-based firing, which is also likely discriminatory and illegal.
This is why severance agreements have become so popular. They want to avoid these types of claims later. After all, if the goal is to save money, it does not make much sense to fire people, and then, have to fight hundreds, if not thousands of lawsuits later for violations of Title VII, the Americans with Disabilities Act, the Older Workers Benefit Protection Act, the Equal Pay Act, etc.
Basic requirement for validity
First, and foremost, it is important to understand that a Los Angeles, California, severance agreement (also called a termination agreement or a general release and covenant not to sue) is a contract. As such, it is governed by the same laws of any other contract, in addition to specific laws that govern severance agreements.
One basic requirement is consideration. This means that, to be valid, you must receive something of value in exchange for signing the severance agreement that you would not otherwise be entitled to. As such, you cannot be offered pay or leave you already earned. Instead, it must be something separate of value, like a lump sum payment, continued benefits that you do not pay for, etc. And, in future posts, we will explore additional requirements and provisions.