It’s not uncommon for a severance offer to be made when an employee is terminated. This is often a win-win for everyone involved: the employer obtains a release of potential claims, while the employee gets payments and/or benefits that they would not otherwise be entitled.
One of the first questions legal counsel will ask when drafting a severance offer is whether the employee is 40 years old or older. This is because workers age 40 and over are covered by the Older Workers Benefit Protection Act (OWBPA). Part of the Age Discrimination in Employment Act, the OWBPA sets out a set of specific requirements that must be included in the severance package to obtain an effective release and waiver of age discrimination claims. Among other things, an employee must be given 21 days to consider whether to accept the agreement.
But what happens when circumstances change after the severance offer is made? Maybe the employer learns that the worker made disparaging statements about the company, or becomes concerned that trade secrets might be disclosed. On its face, the language in the OWBPA would lead many to believe that once the offer is made it must remain open for 21 days. But various courts that have addressed this issue have said this is not the case. The courts have held the OWBPA doesn’t override common law contract principles, which generally give a party the ability to modify or withdraw an offer any time before it is accepted.
Ellison v. Premier Salons
One case that highlights courts’ view on this issue is the Eight Circuit’s 1999 decision in Ellison v. Premier Salons. Premier extended a severance offer to its 62-year-old former CFO, but revoked the offer a couple weeks later after learning he made defamatory statements about the company and its president. A new, less valuable agreement was sent to Ellison, who ignored the deal and signed the original. He filed a lawsuit after Premier refused to honor it.
Affirming a lower court’s decision, the Eighth Circuit held the OWBPA does not create an irrevocable power of acceptance. It said the law simply provides an employee be given 21 days to consider an offer if the waiver of potential ADEA claims is to be considered knowing and voluntary, and thus valid. If Ellison’s assertion were correct and offers could not be revoked during that period, “an employer could not revoke an offered separation agreement even if the day after the offer was made the employee sold the employer’s trade secrets to the company’s biggest competitor, or the employee decided to shoot the company’s president, or, as here, the employee made defamatory statements about the company or its president,” the court wrote.
While it is unusual for an employer to withdraw a severance offer, it is important to understand that the offer may be rescinded, even if it is covered by the OWBPA. Employers need to be cognizant of their rights in the event of bad behavior by the employee before the agreement is signed. However, employers should be careful not to suggest that they might withdraw an offer to encourage the employee to accept before the 21-day period is over. In Ellison and similar decisions, courts have left intact this window for employees to consider the severance offer and pressuring a worker to sign early could open the employer up to liability.