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Can a Severance Offer Be Revoked by an Employer Before the Expiration of the 21 Day Review Period?

Posted by Frank Steinberg | Mar 20, 2015 | 0 Comments

A few months ago a business offered an employee a severance package.  The employee was age-protected (age 40+), a release was desired by the employer as a condition of paying the severance, and the severance agreement therefore contained the language required by the Older Workers Benefit Protection Act giving the employee at least 21 days to sign.  After the offer was made, but before the 21 days had run out, new information about the employee's conduct came to the attention of the business. This new information led the business to rethink whether it should make the severance payment.  The company thus faced the question whether the offer could be revoked lawfully before the employee accepted it.

Good arguments can be made on both sides of this question, and lawyers will not necessarily agree on the answer. Legal research reveals little authority on the subject, confirming what employment lawyers know: as a practical matter, once a severance offer is made, it is rarely pulled off the table. When offers are withdrawn it usually results from the failure of negotiations after an extended period, usually well past the expiration of the 21 day period.  As a result, only a few courts have been called upon to address the issue. 

So what's the answer?  The courts that have looked at the issue agree that the OWBPA does not trump (“preempt” for those of you who insist on the legal niceties) common law principles of contract formation. Under those principles, an offer to enter into a contract may be revoked (withdrawn) at any time before it is accepted.   Therefore, a severance offer can be revoked at any time, including within the 21 day period.

What's the takeaway?  For businesses, you will usually want to move forward with making a severance payment in exchange for a release.  After all, you made the decision to offer severance for sound business reasons.  But for those rare cases in which you have second thoughts, you can revoke before the employee accepts.  If you want to do it, do it quickly and do it in writing.  Wait too long and it may be too late.  

For employees, by all means check with counsel first, but once you are satisfied with your company's severance offer, get it locked in as soon as possible.  

The race is not always to the swift, but usually it is. 

About the Author

Frank Steinberg

Frank is the founder and principal of Steinberg Law, LLC. A Jersey boy born and bred, he focuses on employment litigation and counseling, business litigation,  and aviation law. Following law school and a clerkship in the federal district court Frank spent his early career with large litigation ...

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