Within the current economic climate, employee reductions and layoffs are becoming more and more common. Indeed, even in high profile and C-level positions, severance agreements are now common. However, what many may not expect to see in those severance agreements are discrimination waivers.
Severance agreements in general
Pennsylvania severance and termination agreements are contracts. They are an agreement between the employer and employee that dictates the terms of their termination, usually through a layoff, but they can also be a routine way that employers dismiss their employees. They include agreements not to sue and waivers of rights, in exchange for something.
Still controlled by contract law
A key to whether these agreements are legal is whether or not there is appropriate consideration flowing to the employee for giving up their right to sue. Appropriate consideration cannot be what the employee already qualifies for or is entitled to. For example, earned vacation time, sick leave and a vested pension cannot be used as consideration. Instead, some additional lump sum or periodic payment is needed.
Employers should be careful about whom they fire
It is key that a Pennsylvania employer’s termination decision be based on something not related to the employee’s protected class. This includes their age (40 and older), race, sex (sexual orientation), national origin, religion or disability. Unfortunately, for those 40 and up, they are likely to get severance offers as they, usually, make the most and are nearest to retirement. However, this can raise questions of age discrimination, which is why severance agreements now routinely include a release of liability for all employment claims, including discrimination.
Before a case will be allowed against a former employer, a court will need to determine whether the severance agreement is valid. If not, even discrimination claims could be dismissed as waived by the employee. The key will be whether there was appropriate consideration and whether the employee voluntarily and knowingly consented to the discrimination waiver.
Knowing and voluntary
The knowing and voluntary inquiry is quite litigious. Each discrimination statute has its own tests as to whether an employee made a knowing and voluntary agreement. This is why employees should consult with a Pennsylvania attorney prior to signing a severance agreement. However, even if one is already signed, it may not be enforceable.