How Long Does an Employee Get to Review a Severance Agreement?

By Eric B. Meyer

If you guessed 15 minutes, you would be right, according to a recent decision from the Third U.S. Circuit Court of Appeals.

And you don’t need to point a gun at the employee’s head? A “knowing and intelligent” waiver based on a “totality of the circumstances” will suffice.

The case is Gregory v. Derry Township School District. You can view a copy of the decision here. (A big thank you to Maria Danaher for bringing this case to my attention by blogging about it on Employment Law Matters.)

The plaintiff, a former school teacher, was presented with a separation agreement by the school principal. The plaintiff had just 15 minutes to review the agreement before signing it.

Appeals Court balanced 7 different factors

However, before the school had presented the plaintiff with the agreement for her review, the plaintiff’s representatives had negotiated the terms of the agreement and ensured that it contained what was most important to plaintiff, most particularly continued health insurance and a positive letter of recommendation. The plaintiff’s representatives also ensured that she was allowed to resign at the end of the school year, rather than be fired. Notably, the plaintiff could not identify what it was in the agreement that troubled or confused her.

On these facts, the Third Circuit Court of Appeals affirmed the lower court’s ruling that, based on the totality of the circumstances, the plaintiff had voluntarily waived her right to pursue claims against the school. In reaching this conclusion, the court balanced seven different factors, no one of which was dispositive:

The clarity and specificity of the release language;
The employee’s education and business experience;
The amount of time the employee had for deliberation about the release before signing it
Whether the employee knew or should have known his rights upon execution of the release;
Whether the employee was encouraged to seek, or in fact received benefit of counsel;
Whether there was an opportunity for negotiation of the terms of the agreement; and
Whether the consideration given in exchange for the waiver and accepted by the employee exceeds the benefits to which the employee was already entitled by contract or law.

Although the plaintiff argued she did not have enough time to consider the release (Factor #3), the Court of Appeals found that the other factors outweighed this consideration. Plus, as the court noted, the plaintiff was “free to consult with counsel or to take the Agreement home and review it further, and she acknowledged that no one physically forced her or threatened her in any way if she failed to sign.”

Tips for employers who offer severance agreements

Part of me thinks the school got lucky here. Sometime it’s better to be lucky, than good. But most times, it’s just better to be good. So, three tips for being good.

Include language in the Agreement suggesting that the employee consult with counsel before signing. In certain cases — e.g., an agreement waiving rights under the Age Discrimination in Employment Act — this is mandatory. Even if voluntary, I would still include a provision in the agreement suggesting that employee consult with counsel before signing. Whether the employee does that is on him/her.
Use a plain-English release. Separation agreements that contain lots of legalese are for suckers. The easier it is to read, the easier it is to understand, and the less chance there will be for employees to claim that they did not understand what they were signing.
Make sure that you are giving the employee something to which the employee is not already entitled. Seems obvious right? But, “consideration” such as agreeing not to withhold the employee’s final paycheck or agreeing to offer COBRA to an otherwise COBRA-eligible employee is not “consideration” for a separation agreement. That will just buy you another lawsuit.

This was originally published on Eric B. Meyer’s blog, The Employer Handbook.