A severance offer is a voluntary payment package extended by an employer to a departing employee, typically in exchange for the employee agreeing to release potential legal claims. Whether an employer can rescind this offer depends entirely on the status of the agreement: whether it remains an open proposal or has become a legally binding contract. Contract law principles dictate the employer’s ability to withdraw the package.
Understanding the Severance Offer as a Contract
A severance package is not an automatic entitlement but a formal contractual offer presented upon termination. To become binding, the proposal requires three legal components: an offer from the employer, acceptance by the employee, and the exchange of consideration. Until all three elements are satisfied, the document remains a draft proposal rather than an enforceable agreement.
The employer typically includes a deadline for the employee to review and sign the separation agreement. For employees aged 40 or older, the Older Workers Benefit Protection Act (OWBPA) mandates a minimum review period of 21 days for an individual termination, or 45 days for a group layoff. This protected period does not prevent the employer from withdrawing the offer before it is signed.
Rescission Before the Offer is Accepted
An employer maintains the right to withdraw a severance offer at any point before the employee formally accepts it by signing the agreement. Until the employee signs, the offer is merely a proposal, and the employer is free to revoke it without legal consequence. This ability to rescind exists even if the employee is within the 21-day or 45-day consideration period mandated by the OWBPA.
If the employee attempts to negotiate the terms of the package, that action legally constitutes a rejection of the original offer and the creation of a counteroffer. The employer is then free to reject the counteroffer, revert to the original terms, or rescind the entire proposal without liability.
The Importance of Consideration
Consideration is the defining element that transforms a signed severance agreement into an enforceable contract. It is the exchange of value between the parties. The employee must receive something they were not already entitled to, in exchange for giving up something of value, usually their right to sue the employer. Severance pay, extended benefits, or outplacement services are the typical forms of consideration provided by the employer, as these are benefits beyond final wages or accrued vacation time.
The employee’s consideration is often a broad general release of claims, an agreement to non-disparagement, and adherence to confidentiality clauses. For a waiver of age discrimination claims under the Age Discrimination in Employment Act (ADEA) to be valid, the OWBPA requires the agreement to specifically reference the ADEA and advise the employee to consult with an attorney. Employees aged 40 or older are granted a mandatory seven-day period after signing the agreement to revoke their acceptance. Once this revocation period has passed, the contract is fully binding, and the employer’s ability to rescind disappears.
Challenging Rescission After Acceptance and Agreement
When an employee has signed the agreement and the OWBPA revocation period has expired, the employer’s refusal to pay the promised severance constitutes a breach of contract. The employee’s recourse shifts from contesting the withdrawal to enforcing the terms of the contract. This often involves filing a lawsuit seeking damages for the full value of the promised severance pay and benefits.
If the agreement included a waiver of ADEA claims and failed to comply with strict OWBPA requirements, the waiver may be deemed invalid or unenforceable. In some jurisdictions, the employee may pursue their age discrimination claim while still retaining the severance payments already received. Seeking specific performance—a court order compelling the employer to fulfill the contract—is another potential remedy for a clear breach.
Common Employer Justifications for Attempted Rescission
After a severance agreement is signed, an employer may attempt to stop payments or refuse benefits based on the employee’s alleged breach of the agreement’s terms. One common justification is the discovery of material pre-termination misconduct unknown to the employer when the offer was made. If the contract contains a clause allowing termination of payments upon discovery of such misconduct, the employer may cite it as grounds for non-payment.
A more frequent reason for attempting to void the contract is the employee’s violation of post-employment obligations. These violations often include breaching a non-disparagement clause, violating a confidentiality provision, or failing to adhere to a valid non-compete clause. However, the employer cannot unilaterally void the contract; they must prove the employee’s breach of a material term to justify stopping the severance payments.
What to Do If Your Severance Offer is Rescinded
An employee whose severance offer is rescinded, particularly after signing, must act quickly to protect their rights. The first action is to meticulously document all communication related to the offer, acceptance, and subsequent rescission notice. This documentation should include the date the agreement was signed and the specific reason the employer provided for the withdrawal.
The next step involves a thorough review of the signed agreement to identify any clauses related to breach, cure periods, or material misrepresentation. Employees should formally notify the employer in writing that they consider the rescission a breach of contract, demanding immediate payment of the promised severance. Consulting with an employment attorney is advised to evaluate the contract’s enforceability and determine the most effective legal strategy to recover damages.