Terminations of employment often come as a sudden surprise to the affected employee. In this context, employees who are offered a “severance package” or “severance agreement” must relatively quickly understand the meaning of the underlying agreement and decide whether or not to sign.
How much time does the employee have to decide whether or not to sign a severance agreement? This will depend on what terms of the underlying agreement, the age of the employee, the legal claims that the employee would release by signing the agreement, and if the employee is terminated because of a lay off. Depending on these factors, the employee will have between five and 45 days to sign the agreement.
The Five Day Deadline:
California recently enacted a five day minimum deadline for employees to review a severance agreement. (Cal. Gov’t. Code § 12964.5(b)(4).) This means, that no matter what the employee’s age or the reason for the termination, the employee must be given a minimum of five business days to consider the severance agreement. Importantly, the employee may sign and return the agreement before the five days have elapsed if he chooses to do so.
However, this new five-day requirement was enacted under the California Fair Employment and Housing Act, which only applies to employers of five or more employees. (Cal. Gov’t. Code § 12926 (d).) Therefore, employers with one to four total employees would not be subjected to this minimum requirement.
The Twenty-One Day Deadline:
The vast majority of severance agreements impose a deadline of twenty-one (21) days for the employee to sign the severance agreement. This deadline is used because a federal law prohibiting age discrimination, called the Older Worker Benefit Protection Act (“OWBPA”), requires the underlying employee to be given at least 21-days to consider a severance agreement if the employer wants the employee to release any legal claims for age discrimination; i.e. discrimination against employees older than 40. (29 C.F.R. 1625.22 (e) (6).) Because employers almost always want a general release of all possible or theoretical employment law claims, including age discrimination, this means that most severance agreements have twenty-one day deadlines.
This 21-day deadline does not apply if the employer does not want a release for age discrimination, if the employee is under forty years old, and the agreement provides a shorter amount of days.
The Forty-Five Day Deadline:
Occasionally employees will be given a severance agreement with a forty-five (45) day period for the employee to consider the agreement. This deadline is arises when the employee is part of larger layoff, or a “mass firing”, where a whole department or group of employees (called a “decisional unit”) are terminated.
This highly particular requirement again comes from federal law prohibiting age discrimination. when releasing claims of age discrimination. (29 C.F.R. 1625.22 (e) (1)(ii).) If an employer wants to release any claims of age discrimination from an employee who has been terminated as part of a larger layoff, the forty-five day period must be used.
The Seven-Day Revocation Period:
In addition to the twenty-one and forty-five day deadlines, employees releasing claims of age discrimination are also given a seven-day “revocation period”. (29 C.F.R. 1625.22 (e) (1)(2).) During the revocation period, an employee who has already signed the severance agreement is given the opportunity to revoke or cancel the agreement if they change their mind; i.e. a “cooling off” period. The underlying severance agreement then becomes effective after the seven day period passes without the employee having revoked it.
Although rarely used by employees, this revocation period essentially extends the underlying deadline by an additional seven days.
Longer Periods Are Possible:
Notwithstanding the minimum deadlines provided by law, longer periods of time are still possible by way of an agreement between the employee and the employer. If, for example, the employee needs a longer period of time to consider a severance agreement, he may request additional time to do so. If this is done the employee should confirm that the deadline has been extended in writing via an email to the employer.
Have you been provided with a severance agreement? Contact the Law Office of Brian Mathias.