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Under other laws, such as Title VII, the rules are derived from case law.

In addition to being knowingly and voluntarily signed, a valid agreement also must: (1) offer some sort of consideration, such as additional compensation, in exchange for the employee’s waiver of the right to sue; (2) not require the employee to waive future rights; and (3) comply with applicable state and federal laws.

Often, employers terminate older employees who are eligible for retirement, or nearly so, because they generally have been with the company the longest and are paid the highest salaries.

Even in good economic times, however, businesses of every size carefully assess their operational structures and may sometimes decide to reduce their workforce.

If an employee who signed a waiver later files a lawsuit alleging discrimination, the employer will argue that the court should dismiss the case because the employee waived the right to sue, and the employee will respond that the waiver should not bind her because it is legally invalid.

Before looking at the employee’s discrimination claim, a court first will decide whether the waiver is valid.

In 1990, Congress amended the ADEA by adding the Older Workers Benefit Protection Act (OWBPA) to clarify the prohibitions against discrimination on the basis of age.

Most courts, however, look beyond the contract language and consider all relevant factors – or the totality of the circumstances -- to determine whether the employee knowingly and voluntarily waived the right to sue.

A severance agreement is a contract, or legal agreement, between an employer and an employee that specifies the terms of an employment termination, such as a layoff.

Sometimes this agreement is called a “separation” or “termination” agreement or “separation agreement general release and covenant not to sue.” Like any contract, a severance agreement must be supported by “consideration.” Consideration is something of value to which a person is not already entitled that is given in exchange for an agreement to do, or refrain from doing, something.

An employer’s decision to terminate or lay off certain employees, while retaining others, may lead discharged workers to believe that they were discriminated against based on their age, race, sex, national origin, religion, or disability.

Other employers evaluate individual employees on criteria such as performance or experience, or decide to lay off all employees in a particular position, division, or department.

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