Severance Waivers – Why They Matter and What’s the Purpose?
When senior insurance executives leave a company, severance agreements are often the final step in concluding the employment relationship. These agreements commonly include a waiver of legal claims in exchange for severance pay or other benefits.
In Massachusetts, severance pay is generally not automatically required by law in most at-will employment situations. Severance agreements are generally not a statutory entitlement; they are negotiated contracts that forestall potential litigation by offering benefits.
Compensation structures in the industry often involve complex bonuses, commissions, deferred compensation, equity incentives, and regulatory considerations. A severance waiver may affect these financial interests, as well as potential employment claims.
Severance agreements can be extremely broad, and they commonly include a “general release of claims,” which can permanently waive certain legal rights.
What Is a “General Release” of Claims and What Does It Cover?
A general release is a provision in which an employee generally agrees to waive their right to bring certain legal claims against the employer.
These releases often cover claims such as:
- Employment discrimination
- Retaliation for protected activity
- Wage-and-hour disputes
- Breach of employment contracts or agreements
Most severance releases apply only to claims that arose before the date the agreement is signed, not to future conduct by the employer.
Common Waiver and Release Terms
In addition to the general release, severance agreements often include several related provisions designed to protect the employer.
Release of claims: Agreements typically waive “any and all claims, known or unknown” that arose before signing. They often list specific laws, including Massachusetts wage and discrimination statutes, federal discrimination laws, and contract claims.
No admission of liability: Employers typically state that the severance payment does not constitute an admission of wrongdoing.
Confidentiality or non-disclosure: These provisions limit what the employee can disclose about the agreement, their employment, and sometimes about internal company matters.
Non-disparagement: Employees may be asked not to make negative statements about the employer.
Return of property and cooperation: Departing employees may be required to return company property and assist with future litigation or regulatory inquiries that frequently arise in the heavily regulated insurance industry.
Claims Employers Can Legally Ask You to Waive
Massachusetts employers can lawfully request waivers of many employment-related claims in exchange for severance compensation.
These often include:
- Discrimination claims under federal and Massachusetts law
- Retaliation claims
- Wrongful termination claims
- Certain wage disputes
- Breach of contract claims
- Tort claims connected to employment
Because insurance executives often receive compensation through bonus plans, commissions, deferred compensation arrangements, or equity awards, it is particularly important to review how those financial interests are addressed before agreeing to a waiver.
Special Rules for Age Discrimination Waivers (OWBPA Compliance)
Employees aged 40 or older receive additional protections under the Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act (OWBPA).
To waive age discrimination claims, severance agreements generally must follow strict rules, including:
- The agreement must be written in clear and understandable language
- It must specifically reference age discrimination claims
- The employee must be advised to consult an attorney
- Employees must receive 21 days to review the agreement (45 days in certain group layoffs)
- After signing, the employee has 7 days to revoke the agreement
If these requirements are not satisfied, the waiver of age discrimination claims may be unenforceable.
What Employers Cannot Require You to Waive
Employees generally cannot waive claims based on future conduct. A severance agreement can release claims that already exist, but generally cannot protect an employer from future discrimination, retaliation, or other unlawful acts.
Employees also generally retain the right to file complaints with government agencies, such as the Equal Employment Opportunity Commission or the Massachusetts Commission Against Discrimination (even if they can’t recover money).
Other rights that generally cannot be waived include:
- Unemployment benefits
- Workers’ compensation claims
- Certain whistleblower protections under Massachusetts law
- Earned wages and commissions protected by the Massachusetts Wage Act
Severance agreements sometimes contain very broad language that appears to waive more rights than the law allows, but this language should not be taken at face value. A careful review is essential to make sure you understand your rights both now and in the future.
Unique Issues for Insurance Executives
Insurance Executive compensation packages often include deferred compensation arrangements, equity grants, commissions, or performance-based bonuses. If termination occurs shortly before vesting or payment, disputes may arise about whether compensation tied to past performance should still be paid.
Executives may also need to consider:
- Equity forfeiture provisions tied to termination status
- Clawback and/or repayment policies for incentive compensation, bonuses, and/or commissions
- Regulatory reporting obligations to insurance regulators
- Fiduciary or compliance responsibilities tied to prior roles
Senior executives may have meaningful leverage to negotiate severance terms. Common negotiation points may include, without limitation:
- Severance payments calculated as a multiple of base salary
- Pro-rated bonuses, commissions, and/or other compensation, for the year of termination
- Neutral or agreed-upon references
- Continued directors and officers liability insurance coverage
- Modifications to restrictive covenants such as noncompete agreements
Conclusion and Practical Guidance
Severance agreements and waivers of legal claims are common, but they should never be treated as routine paperwork. Once signed, these agreements may be very difficult to challenge or undo.
The Bottom Line
Massachusetts law places important limits on severance waivers, but the details of each agreement matter. Complex financial and regulatory considerations in the insurance industry make careful legal review particularly important.
At the Maura Greene Law Group, we often represent high-level executives who require a review of the terms of their severance agreements. Our experienced team can help evaluate the agreement, identify potential leverage, and potentially negotiate terms that protect both your legal rights and long-term professional interests. Contact us here to schedule a consultation or call today (617) 936-1580.
The Not So Fine Print:
Every case has its unique facts. Before you take any action, you should contact an employment lawyer and get advice on your own situation. We can’t provide legal advice here, and this isn’t intended as legal advice. It is best, if possible, to establish a relationship with an attorney before a workplace issue turns into a crisis.