Oregon Severance Agreement Laws: Know Your Rights

Facing job termination is challenging, and understanding Oregon’s specific legal protections can significantly impact your transition. Unlike many states, Oregon has enacted unique severance agreement laws that provide employees with substantial protections. Whether you’re currently negotiating your departure or preparing for the future, understanding Oregon’s distinctive severance agreement landscape is essential for protecting your interests. 

If you need guidance through this process, don’t hesitate to reach out to Meyer Employment Law. Our experienced team is here to help you navigate your severance agreement and ensure your rights are fully protected. Contact us today for a consultation!

Also Read:

• Navigating the Murky Waters of Workplace Intimidation
• The Importance of Clear Employment Contracts: Protecting Both Parties

Overview of Oregon Severance Agreement Laws

Oregon severance laws differ significantly from those in many other states. As an at-will employment state, Oregon generally permits employers to terminate employment relationships without cause, unless an employment contract specifies otherwise. However, the state’s robust labor protections add important nuances to this relationship.

The Oregon Workplace Fairness Act (OWFA), codified in ORS 659A.370, represents a landmark development in Oregon severance laws. This statute prohibits employers from entering into agreements with employees that contain nondisclosure, nondisparagement, or no-rehire provisions related to conduct constituting discrimination or sexual assault, with limited exceptions. These restrictions give workers considerably more leverage during negotiations.

Under ORS 659A.375, employers must maintain a written anti-discrimination policy with specific elements related to prohibited conduct, reporting procedures, and employee rights. Additionally, ORS 659A.380 allows employers to void certain severance agreements with management employees who are found to have violated the OWFA after a good faith investigation.

Oregon law also mandates that employees must be given at least seven days to revoke a severance agreement after signing, providing a crucial reconsideration period. The state stands out for prohibiting confidentiality of settlement amounts in agreements and imposing civil penalties of up to $5,000 for violations under ORS 659A.885.

Key Components of an Oregon Severance Agreement

Terms and Conditions: An Overview

A severance agreement under Oregon law is a legally binding contract between employer and employee that outlines the complete terms of an employment separation. These agreements typically detail the specific benefits an employee will receive upon termination, which may include monetary compensation, benefits continuation, and outplacement services.

Every separation agreement must include clear language about the timing and amount of severance pay. Under ORS 652.140, which governs payment of wages upon termination, final wages must be paid by specific deadlines regardless of severance negotiations. The agreement must explicitly state the reason for separation and detail the employee’s last day of work.

The effectiveness of an Oregon separation agreement hinges on its compliance with state-specific requirements. Agreements must adhere to the OWFA’s unique provisions, including providing employees with a copy of the company’s anti-discrimination policy as required by ORS 659A.375.

Confidentiality and Non-Compete Clauses

Confidentiality provisions in severance agreements require special attention under Oregon law. The OWFA (ORS 659A.370) significantly limits employers’ ability to include confidentiality clauses that prohibit employees from discussing workplace discrimination, harassment, or sexual assault. Such restrictions can only be included if specifically requested by the employee, representing a major shift from traditional severance agreement practices.

Similarly, non-compete clauses face strict scrutiny in Oregon. When included in a severance agreement, non-compete provisions must be necessary to protect legitimate business interests, reasonable in geographic scope and duration, and provided to the employee at least 30 days before enforcement. Oregon courts generally view overly restrictive non-compete clauses unfavorably.

It’s worth noting that the Federal Trade Commission issued a rule banning most non-compete agreements nationwide in 2024, though this rule was blocked by a federal judge in August 2024. This has created uncertainty around the enforceability of non-competes in Oregon and other states.

Waiver of Claims: What it Means for Employees

The waiver of claims section represents perhaps the most consequential component of any severance agreement from an employer’s perspective. This provision requires employees to release the company from potential legal claims in exchange for the severance package. These waivers typically cover all possible claims arising from the employment relationship, including discrimination, wrongful termination, and wage disputes.

For employees, understanding the scope of claims being waived is crucial before signing. Once executed, these waivers generally prevent pursuing future legal action against the employer. Oregon law requires these waivers to be knowing and voluntary, written in clear language, and providing reasonable consideration in exchange for the rights being surrendered.

For employees over 40, the agreement must provide 21 days to consider the offer and 7 days to revoke after signing, per the Older Workers Benefit Protection Act. This cooling-off period allows employees time to evaluate the implications of waiving potentially valuable legal claims.

Final Paycheck and Other Financial Considerations

ORS 652.140 mandates that employers deliver final paychecks by the end of the next business day following termination (or immediately if termination was pre-scheduled). This timing requirement operates independently from any severance agreement terms, meaning employers cannot delay final wage payments regardless of severance negotiations.

Regarding accrued time off, Oregon law doesn’t require employers to pay out unused vacation time unless established by company policy or employment contract. The agreement should also address continuation of benefits, including health insurance coverage under COBRA.

Tax implications represent another critical financial consideration, as severance payments are typically subject to income tax and may affect unemployment benefits eligibility. Employers must withhold appropriate taxes from severance payments.

Rights and Obligations for Employees

Employee Rights: What You Need to Know

The Oregon Workplace Fairness Act has revolutionized employee protections during employment separation. This legislation specifically addresses power imbalances in employment termination situations. Under ORS 659A.370, employees have enhanced protections against restrictive confidentiality provisions that might otherwise prevent them from discussing workplace discrimination or harassment.

The legal framework established by Oregon law provides several critical rights for employees facing termination:

1. The right to a 7-day revocation period after signing a severance agreement
2. The right to receive a copy of the company’s anti-discrimination policy when negotiating a severance agreement
3. The right to seek civil penalties up to $5,000 through private action under ORS 659A.885 if an employer violates these provisions
4. Protection from conditional severance offers that attempt to force acceptance of otherwise prohibited terms

These enhanced protections apply not only to current employees but also extend to former employees, providing continued safeguards even after the employment relationship has ended.

Case Example: Portland Tech Employee Leverages OWFA

Consider the case of a software developer at a Portland tech company who was offered a standard severance package containing confidentiality, non-disparagement, and no-rehire provisions after a department reorganization. Understanding her rights under the OWFA, she pointed out that these provisions were prohibited unless she specifically requested them. As a result, she was able to negotiate for a 25% increase in severance pay in exchange for voluntarily accepting modified versions of these clauses, demonstrating how knowledge of Oregon’s unique protections can significantly enhance an employee’s negotiating position.

Steps to Take Before Signing a Severance Agreement

When presented with a severance agreement, taking methodical steps before signing can significantly protect your interests:

1. Thoroughly read the entire document, paying particular attention to any clauses that limit your future employment options or ability to speak about your experiences.
2. Request adequate time to consider the agreement before signing. While ORS 659A.370 mandates a 7-day revocation period after signing, securing more time on the front end is advisable.
3. Consult with an employment attorney familiar with Oregon’s Workplace Fairness Act. Legal counsel can identify provisions that may be unenforceable under Oregon law, such as overly broad confidentiality clauses or inappropriate non-compete provisions.
4. Document everything related to your termination and severance negotiations. This includes saving emails, text messages, performance reviews, and notes from relevant conversations.
5. Consider negotiating improvements to the initial severance offer. Common negotiation points include:

• Increasing the severance amount or extending the payment period
• Securing longer benefit continuation
• Obtaining positive or neutral references
• Modifying or removing restrictive covenants
• Adding outplacement services or career transition assistance

6. Understand the tax implications of your severance package. Severance payments typically count as taxable income, which may affect your financial planning.

Comparison: Oregon vs. Federal Severance Requirements

Employer Guidelines for Drafting Severance Agreements

Legal Requirements for Employers

Oregon severance laws impose specific obligations on employers that differ significantly from federal requirements. Most notably, ORS 659A.370 fundamentally restricts what employers can include in separation agreements. Employers cannot include provisions that prevent employees from discussing workplace discrimination, harassment, or sexual assault unless the employee explicitly requests such provisions.

Oregon law doesn’t mandate that employers provide severance compensation, but when they do offer it, several regulatory constraints apply. Employers must provide employees with a copy of their anti-discrimination policy as required by ORS 659A.375. Additionally, employers are prohibited from making severance offers conditional upon the employee requesting inclusion of otherwise restricted terms like confidentiality clauses.

ORS 652.140 creates a specific timeline that employers must follow for final wage payments. For standard separations, final wages must be paid by the end of the next business day after termination. For voluntary separations with at least 48 hours’ notice (excluding weekends and holidays), payment must be made on the final day.

Best Practices in Crafting Fair Severance Packages

When developing severance packages that comply with Oregon law, employers should:

1. Establish consistent, written policies to ensure equitable treatment across similar positions and circumstances.
2. Develop compensation formulas that link severance pay to length of service.
3. Take particular care when drafting non-compete provisions. To be enforceable, such provisions must be necessary to protect legitimate business interests, reasonable in geographic scope and duration, and provided to the employee at least 30 days before enforcement.
4. Provide clear, plain-language explanations of all agreement terms. Technical legal jargon often confuses employees and may lead to miscommunication or future disputes.
5. Clearly explain which claims are being waived and which rights remain intact, as employees cannot waive certain protected rights such as filing EEOC charges.

Case Example: Manufacturing Company Adapts to OWFA

A Salem-based manufacturing company revamped its severance agreement templates after the 2020 OWFA amendments took effect. The company removed standard confidentiality and non-disparagement clauses related to discrimination claims and implemented a two-step process: first offering agreements without these provisions, then documenting when employees specifically requested their inclusion. The company also began providing separate documentation of its anti-discrimination policy with each severance offer. While initially more complex to administer, this approach drastically reduced the company’s risk of non-compliance with ORS 659A.370 and potential civil penalties.

Dispute Resolution and Enforcement

Even carefully drafted severance agreements can lead to disputes. To address this reality, employers should consider including well-defined dispute resolution mechanisms within severance agreements. Many incorporate tiered resolution processes that begin with informal discussions, proceed to mediation if necessary, and only then advance to binding arbitration or litigation.

Under ORS 659A.370, employers should recognize that certain provisions may be deemed unenforceable regardless of the agreement’s language. If an employer includes prohibited terms, they face potential civil penalties up to $5,000 per violation under ORS 659A.885.

Recent case law has further clarified employer obligations. McClusky v. City of North Bend (2024) expanded the application of the “cat’s paw” theory of liability for retaliation claims between joint employers. The court held that retaliatory animus could be imputed between joint employers even if the biased individual was not subordinate to or employed by the same entity as the decisionmaker.

When to Consult a Lawyer

Navigating the complexities of employment termination can be challenging, and knowing when professional legal guidance becomes necessary is crucial. Consider consulting an employment attorney like Meyer Employment Law in the following situations:

1. You feel pressured to sign quickly without adequate review time. Oregon law recognizes the importance of careful consideration through the mandatory 7-day revocation period under ORS 659A.370.
2. Your agreement contains complex or unusually restrictive terms, such as broad non-compete clauses, extensive confidentiality provisions, or comprehensive releases of claims.
3. The financial compensation seems disproportionate to your tenure, position, or industry standards, or you believe your termination involved discrimination or retaliation.
4. There’s ambiguous or vague language in the agreement that could lead to different interpretations of your rights and obligations.
5. Your separation involves allegations of workplace misconduct, discrimination, harassment, or retaliation. These situations implicate multiple layers of state and federal law, with significant potential liability for employers and important rights at stake for employees.

Understanding Oregon’s distinct severance agreement laws can significantly impact your employment transition. With its robust employee protections under the Oregon Workplace Fairness Act, final paycheck requirements, and restrictions on confidentiality provisions, Oregon provides a legal framework that often gives employees more leverage than they might have in other states. Whether you’re an employee evaluating an offer or an employer drafting agreements, knowledge of these specific statutory requirements is essential to protect your interests and ensure compliance with Oregon law.