Severance agreements are a great way to legally protect your business during a RIF or layoff event. However, in order for the contract to be legally binding, you have to understand some of the finer points, such as how the ‘severance agree 7-day revocation period’ works.
First, a refresher: a severance agreement is a legal contract between an employer and an outgoing employee that states all of the details of the termination in clear language. It also offers the employee a payment in exchange for their signature, which waives the right for them to sue the organization for wrongful termination.
In the end, severance agreements should help both parties. The payment – also called ‘consideration’ – allows the person to leave their current position without breaking the bank. At the same time, it protects the business by negating the possibility of a lawsuit.
How severance agreements work can differ from state to state. So, make sure you always speak to your legal counsel before implementing one. In fact, it’s always a good idea to work with your counsel during any layoff or RIF event to ensure you are complying with all local, state, and federal laws.
With all of those background details out of the way, it’s important that you understand how to make the contract legally binding. This is where a firm understanding of the ‘consideration’ stage and the ‘revocation’ stage come into play.
After you craft your severance agreement and have your legal team look it over, you will be ready to extend the offer to your employee. Inside your severance agreement, there should be details about how long the person has to reject or sign the offer. This is called the ‘consideration period.’
The consideration period usually lasts 21 days because that is the length of time mandated by law that companies have to give for workers over the age of 40.
“Employees over 40 are protected by the Older Worker Benefit Protection Act (“OWBPA”). To ensure that employees over 40 are not unduly pressured to sign certain agreements, the OWBPA requires that such agreements contain the 21 and 7 day periods,” reports Granovsky & Sundaresh, Attorneys at Law.
Since, by law, employers have to give workers over 40 at least 21 days to consider the agreement, many organizations have simply adopted that time-frame as their standard for all employees, making it easier to have a policy on paper that can be used for the majority of those impacted by a RIF or layoff.
The consideration period is the time when the employee can look the document over with their lawyer, family, or whoever before signing. If the person wants to sign immediately, they definitely can. If the person wants to wait until the 21st day, they can as well.
We always recommend telling the person to have someone look over the agreement to make sure it works for them. This level of transparency is important for your corporate brand and shows that you aren’t trying to force a signature (which is highly illegal).
If the person doesn’t sign the document within 21 days, the contract is void. Simple as that.
After the person signs, they are entitled to the 7 day revocation period.
Let’s now dive into that.
After the employee signs the severance agreement, they are entitled to a period of 7 days to reject the offer. Think of this as a way for them to ensure that they agree to the document. If they sign hastily, they need this period to ensure they made the right decision.
Here’s what Granovsky & Sundaresh say about the matter:
“The 7 day Revocation Period means that, no matter what, for 7 days after the employee signs the agreement, he/she has the right to revoke his/her signature. On day 8, it is a binding agreement. The Revocation Period is not waivable; even if the employee signs the agreement in blood and swears that he/she will not revoke the agreement, that employee still has the option to revoke for 7 days.”
In other words, no matter what the employee says when they sign the document, you cannot skip the 7 day revocation period. It’s there on purpose, by law, to make sure that the person wasn’t coerced into signing the agreement.
Again, this goes back to the Older Workers Benefit Protection Act – OWBPA – which states that all workers over the age of 40 years old must be given 21 days to consider the offer and 7 days to revoke it. You can read more about these details over on the EEOC’s site here.
The reason it has become standard is because the rules dictated by OWBPA make common sense and make for a more legally binding agreement.
Even though having an employee sign a severance agreement negates many claims against your business (but not the ability to still file a suit with the EEOC), you still want the employee to leave your company knowing that you did all that you could to ensure their exit was smooth and painless.
Emotions and tempers can flare during a reduction event, making it vital that the process goes off without a hitch and that the legally binding aspects of the move are handled properly to save you a lot of headaches in the future.
While handing the severance agreement in the best possible way is important, you need to also look at your total layoff or RIF process to make sure that you are doing all that you can to negate harsh feelings when letting someone go.
We’ve written countless articles on how to handle a layoff, going over the finer points of layoff letters, layoff meetings, the severance process, and more.
In short, you need to offer your staff member a great severance package that can help them weather the financial storm they are about to enter and also make sure you set them up for success. If you do so, your employee will not leave your organization with a bad taste in their mouth, which can help you protect your corporate brand and public image.
This is where outplacement services come in handy. Outplacement is a service offered to outbound employees that helps them get back to work as fast as possible.
With a combination of career coaches, digital tools, networking opportunities, and more, outplacement is a sure way to make sure your staff member lands on their feet. It’s also a great way to show the employee that you care about their future and that you want the best for them in their next chapter.
When it comes to offering a severance agreement, you need to allow for a 7-day revocation period where the employee can reject the offer that they signed.
Before the revocation period starts, you should allow the person 21 days to consider signing the document.
The reason why the 21-day consideration period and the 7-day revocation period are standard practice is because of the rules dictated by the Older Workers Benefit Protection Act (OWBPA), which lays out rules that govern how workers over the age of 40 are terminated from organization.
If you follow all of these steps, you will have a strong, legally binding severance agreement that should protect your organization while also lending a helping hand to your staff member. We highly recommend that you add even more help with outplacement services to ensure your staff member lands on their feet.
If you want to learn more about severance agreements or the 7-day revocation period, download our complete guide here:
Josh is an HR journalist and ghostwriter who's been covering outplacement and offboarding for over six years. Before pivoting to the HR world, he was a science journalist whose work can be found in Popular Science, ScienceAlert, The Huffington Post, Cracked, Modern Notion, and more.
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