After an employee is fired or downsized, many companies have the employee sign a waiver giving up the right to sue for wrongful termination. Signing a waiver means that the employee no longer has any legal claim against the company and cannot recover in court. In exchange for the waiver, the employee receives some benefit in return, typically a severance package.

Can My Employer Make Me Agree Not to Sue in Exchange for Severance Pay?

Yes, although an employer is not required by law to provide severance packages to employees who are terminated or fired, many employers offer a severance package in exchange for the employee's agreement not to bring a lawsuit for wrongful termination. Employers know that employees have a valuable right to sue and they provide some type of payment in exchange for the employee to give up that right.

When is a Waiver of a Right to Sue Invalid?

It sounds unethical for an employer to do this, but it's perfectly legal for an employer to provide severance packages in exchange of the employee’s release of rights. However, not all claims are waived when an employee signs a waiver not to sue.

“Knowingly and Voluntarily”

Employees can still sue for discrimination or if the agreement is held to be invalid or unfair and if they didn’t sign the waiver “knowingly and voluntarily.” 

Which means to be unenforceable, the employee will have to show that the waiver was signed under duress or as a result of a wrongful action by the employer. Like if the employer made it confusing and you didn’t understand that you signed away your right to sue. Typically, the court will look for the following to determine if it was signed knowingly and voluntarily:

  • If the waiver was written in a clear and specific manner, based on the employee’s level of education/experience;
  • If it was induced by fraud, duress, undue influence, or other improper conduct;
  • If the employee had enough time to read/think about the waiver;
  • If the employee spoke to a lawyer or was encouraged/discouraged by the employer from doing so;
  • If the employee had an choice in negotiating the terms of the agreement; and
  • If the employer offered additional benefits that are more than required by law and the employee accepted the benefits. 

Discriminated Due to Age, Race, Sex, or Disability

If an employee who signed waiver later files a lawsuit alleging discrimination, then even if the waiver was signed knowingly/voluntarily, the employee can still file a charge with the Equal Employment Opportunity Commission (EEOC). If the EEOC does not pursue the claim, then you will be given a Right to Sue letter which allows you to file the claim in civil court. 

if the EEOC investigates or if you are given the Right to Sue, you are not required to return your severance package. Most importantly, if you signed a waiver then you should speak to a lawyer to determine whether it is enforceable.

Can an Employer Withhold My Paycheck or a Severance Package If I Don't Sign a Waiver of a Right to Sue?

An employer cannot withhold a final paycheck because the employee has done the work and is legally entitled to be paid for it. However, employers are not legally required to provide a severance package. Because of this, the employer probably can withhold severance pay if you refuse to sign a waiver.

An employer may be required to offer severance pay if: 

  • The employee has a written contract stating that severance will be paid;
  • The employee handbooks says all terminated employees are to receive severance pay;
  • The employee is a member of a union and there is a collective bargaining agreement for severance pay; or
  • An oral promise was made that the employer would pay you severance.

However, in many of these situations the requirement will only be that the employer offer severance with all the typical requirements, including the signing of a waiver. However, if you believe you were wrongfully terminated but not due to an EEOC protected status, then it is important to consult an attorney before you sign the waiver. 

Do You Need a Lawyer?

If you have been terminated and asked to sign a waiver, you should speak to a lawyer before doing so. A local employment attorney can advise you of any claims you may have and help you determine whether to pursue those claims or to accept any offered severance package. If you have already signed a waiver, a lawyer can determine whether the waiver is enforceable. A lawyer can also represent you in court should you choose to file a lawsuit.