From the Hotline: Severance Pay for Terminations
Question: Are we required to provide severance pay to an employee who just turned 40 that we are terminating? If so, can we make the payment contingent upon signing the severance agreement?
Answer: There are no requirements that mandate an employer to provide severance pay to terminating employees. If, however, you do provide additional compensation and extra consideration in the desire to incent your terminating employee to release you from any wrongful termination claims, then a separation agreement can be important.
Further, if your employee is age 40 or older, s/he is protected from the age discrimination laws. Specifically in the context of a severance agreement, the OWBPA requires that older workers be given additional time to consider your offer (up to 21 days) and then a period of 7 day to rescind their signature. It is a best practice NOT to provide any of the separation pay to the employee until the signature has been obtained and the rescission period is past.
The text of the specific rules can be found at: http://www.eeoc.gov/eeoc/history/35th/thelaw/owbpa.html under Title II, Section 201 – Waiver of rights or claims.
We recommend that you consult with an attorney prior to any termination action and specifically for assistance in drafting a severance agreement that complies with all applicable state and federal laws for your situation.