Does ERISA or section 409A apply to your termination agreement? However, these agreements can raise many legal issues that need to be digested before an employee can have a sufficient understanding of the agreement. The first of these issues often concerns the law under which the agreement is governed. Depending on the structure of the severance agreement, it may be governed by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or by Section 409A of the Internal Revenue Code (“Section 409A”). Ask an experienced lawyer to review proposed or existing termination agreements. In summary, paying severance pay may seem attractive at first, especially for an employee who loses their job, but severance agreements raise many underlying legal issues that need to be considered before signing. Employees must be aware of all their legal rights and how those rights are affected or restricted by the provisions of a termination agreement before entering into such an agreement. In general, severance agreements are contracts between employees and their employer that provide for the payment of benefits to the employee in the event that the employee loses his or her job without giving reasons. They can be concluded in a first employment contract or later after it has been decided that the employee will be dismissed. Employers are not required to enter into such agreements, but often do so to attract potential employees or mitigate the termination strike. What if § 409A applies to my departure agreement and are there any exceptions? If section 409A is applicable, certain requirements must be met and, if this is not the case, the employee is subject to significant penalties. Fortunately, section 409A provides an exception for certain severance pay agreements because severance pay paid as a result of involuntary dismissal, termination for cause or window program is not covered by section 409A, provided that the severance pay meets certain requirements regarding the timing and amount of payment. In addition, severance pay may be structured to meet another exemption under section 409A, known as the “short-term deferral rule,” whereby payment is made within a certain period of time after the year in which the termination occurs.

Therefore, it is the responsibility of any employee negotiating a termination agreement to determine which law applies to the agreement and to design the agreement to fall within the scope of the section 409A exception, if any. Why are you being asked to sign a waiver and compensation in connection with your termination agreement? In addition, in exchange for severance pay, many employers require the employee to waive and release future labour disputes against the employer. This raises several questions for employees, who must first be able to accurately assess whether they have such potential claims in order to make a full and accurate decision on whether to waive and release. At the same time, various federal laws provide certain safeguards, such as waiting and revocation periods, that an employee must comply with before signing the agreement. Similarly, under federal law, certain rights related to discrimination in the workplace cannot be effectively waived, regardless of any provision to the contrary in a termination agreement. Therefore, it is imperative that employees be aware of their legal rights before signing a waiver and dismissal in exchange for severance pay. Have you just lost your ability to receive unemployment insurance? Another important issue to consider when drafting a termination agreement is whether collection under the agreement would exclude the employee from receiving UNEMPLOYMENT benefits. In New York, the answer to this question depends on the type of severance pay; Therefore, it is crucial that the employee takes this into account when drafting and negotiating the terms of the agreement. Learn more about FindLaw`s newsletters, including our Terms of Service and Privacy Policy. By using this website, you agree to security monitoring and auditing. For security reasons and to ensure that the public service remains accessible to users, this government computer system uses network traffic monitoring programs to identify unauthorized attempts to upload or modify information, or otherwise cause damage, including attempts to deny service to users.

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