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The Ten Most Common Questions Illinois Employers Ask About the Use of Severance and Release Agreements for Terminations
Employers often like to use Severance and Release Agreements when terminating employees because this process brings closure to what could be a potentially litigious situation.
A Severance and Release Agreement is a contractual exchange between the two parties: the employer and the employee who is being let go. The employer gives the employee severance (money or something of value) in exchange for the employee signing a release of all claims against the employer. In other words, the employee agrees to not sue the employer (for example, for wrongful termination).
Employers in Illinois must be aware of the legal requirements dictating what can and cannot be in Severance and Release Agreements; both Federal law and Illinois state law control.
The following are the 10 most commonly asked questions that Illinois employers ask:
1. QUESTION 1: Does the Company have to use a Severance and Release Agreement when firing an employee?
ANSWER TO QUESTION 1: No. Unless the Company has a policy about severance (for example, in the Employee Handbook), entering into a Severance and Release Agreement is 100% voluntary on the parts of both the Company and the terminated employee.
2. QUESTION 2: If the terminated employee chooses not to sign the Severance and Release Agreement, does the Company still have to pay the terminated employee the legal consideration (usually money) as offered in the Severance and Release Agreement?
ANSWER TO QUESTION 2: No. The terminated employee only gets legal consideration (usually money) if the terminated employee voluntarily chooses to sign the Severance and Release Agreement.
3. QUESTION 3: Are there different versions of a Severance and Release Agreement—one version for employees under the age of 40 and another version for employees 40 years of age and older?
ANSWER TO QUESTION 3: Yes. There are many special provisions which both Illinois and Federal law require if the employee is 40 years of age and older.
4. QUESTION 4: When terminating an employee under the age of 40, does the Company have to give the employee 21 days to think over signing the Severance and Release Agreement?
ANSWER TO QUESTION 4: Yes, Illinois employers must. Under the Illinois Workplace Transparency Act (which became effective January 1, 2020), all employees must be offered 21 days to think over signing the Severance and Release Agreement regardless of the age of the employee.
5. QUESTION 5: Can the Illinois employee decide to sign the Severance and Release Agreement BEFORE the end of the 21-day period (in other words, can the employee voluntarily waive the 21-day review period provided by law)?
ANSWER TO QUESTION 5: Yes. The Illinois employee can voluntarily decide not to take the full 21 days provided for review of the Severance and Release Agreement as long as the waiver by the employee is put in writing.
6. QUESTION 6: If the employee cannot decide whether to sign the Severance and Release Agreement and the 21 days for review of the agreement has expired, can the Company give the terminated employee more time to decide whether the employee is going to sign?
ANSWER TO QUESTION 6: Yes. The law only steps in to say 21 days must be offered as a mandated period of time. There are no legal restrictions as to how much time beyond the 21 days the employer can give.
7. QUESTION 7: When should the Company actually pay the legal consideration to the terminated employee who has signed the Severance and Release Agreement?
ANSWER TO QUESTION 7: It is best to wait at least 8 days from the date that the employee signed the Severance and Release Agreement because the employee (regardless of the employee’s age) can revoke his/her acceptance/signature of the agreement within 7 days of signing.
8. QUESTION 8: If employee wants to be paid right away, can the employee voluntarily waive the 7-day revocation period?
ANSWER TO QUESTION 8: Only if the employee is younger than 40 years of age. Employees who are under 40 years of age can knowingly and voluntarily waive the 7-day revocation period, but the waiver must be in writing.
9. QUESTION 9: Can the Illinois employee who is 40 years of age or older be given the opportunity to waive their 7-day revocation period to get their legal consideration sooner?
ANSWER TO QUESTION 9: No. The employee who is 40 years of age or older cannot waive the 7-day period. The 7-day legal right under Federal law cannot be waived for terminated employees who are 40 years of age and older.
10. QUESTION 10: Would it be best not to have a Severance and Release Agreement when terminating an employee because it might make the company “look guilty”? Is this a valid concern?
ANSWER TO QUESTION 10: Some companies prefer not to use Severance and Release Agreements because they believe it may make the Company look guilty. However, a large percentage of employers prefer to use Severance and Release Agreements to have closure between the employee and employer and avoid wrongful termination litigation. This sensitive question should be carefully considered between the Company and the Company’s employment lawyer. There is no pat answer here, but the use of a Severance and Release Agreement is often a wise choice particularly where litigation appears to be likely.
These 10 questions and answers cover the most common concerns that client companies bring to us when terminating an employee. There are many other legal issues not addressed in this article. For example, under Federal law, when Severance and Release Agreements are offered to two or more departing employees (as part of a reduction in force), this fact pattern creates a group termination situation under which the employer (in any state, including Illinois) will need to use a very special kind of “group release.”
For assistance with Severance and Release Agreements, difficult terminations, protesting IDES unemployment insurance claims, etc., contact Attorney Nancy E. Joerg who can be reached at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at email@example.com.
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