New York State is Set to Impose New Requirements for Separation Agreements

Key Highlights

• New York’s “No Severance Ultimatums Act” imposes new procedural requirements for separation agreements with all employees, expanding protections beyond those required under federal law.
• Noncompliant separation agreements will be void and unenforceable, potentially leaving employers without an effective release of claims even after paying severance.
• Employers should update New York separation agreement templates now to comply with the Act’s new timing and notice requirements before it takes effect.

New York’s legislature recently passed the “No Severance Ultimatums Act” which imposes new procedural requirements on employers who offer separation agreements to departing employees.  This Act, which we expect will be signed by Governor Hochul, requires immediate action from employers because it will render non-compliant separation agreements void and unenforceable.

What the Act Requires Employers to Do

The new Act requires that employers provide all employees with a 21-day period to consider the terms of a severance or separation agreement upon the termination of employment, and then a 7-day period to revoke their acceptance after signing the agreement.  The Act also requires employers to provide notice to employees of certain rights, and prohibits fraudulent, misrepresenting or threatening actions by the employer to undermine the Act’s protections. 

How the New Law Differs From the OWBPA

Many of these requirements are already in place in similar form with respect to agreements offered to employees who are over 40 years old under the federal Older Workers Benefit Protection Act (OWBPA).  However, the New York law applies to all employees regardless of age and carries stricter consequences for non-compliance.

Non-Compliance Can Void Separation Agreements

The penalties for non-compliance with the new Act’s requirements are steep.  Agreements that do not include the required consideration and revocation periods and notices will be “void and unenforceable.”  This means that the employer will not get the benefit of the agreement’s release of claims even if the severance amount is paid to the employee.  The Act also provides a basis for employees to seek to invalidate even compliant agreements by claiming that the employer engaged in fraud, misrepresentations or threats to undermine the Act’s protections.

Immediate Steps Employers Should Take

The new requirements will join New York’s 2024 enactment of procedural and substantive requirements for separation agreements, which also render the agreement’s release unenforceable if not met.  Because the Act will take effect immediately once signed by the Governor, employers need to update New York separation agreement forms to ensure that they meet the Act’s requirements, or else they risk paying ex-employees for ineffective agreements.  Please reach out to your Polsinelli Labor and Employment attorney with any questions.