Many companies require departing employees to execute a general release of claims as a pre-condition to receiving severance. In order to satisfy certain legal requirements, these releases often incorporate a consideration period (typically 21 days or 45 days) and a revocation period (typically 7 days). Usually releases or separation agreements will provide that the employee will receive the severance or commence receiving the severance on the 8th day after the employee executes the release (because of a 7 day revocation period). In this situation, by choosing to waive some or all of the consideration period, an employee may be able to control the tax year in which a severance payment is made. The Internal Revenue Service views arrangements of this type as violating Section 409A of the Internal Revenue Code.

Edward J. Rayner and Matthew O. Young have authored this legal update, which addresses releases and Section 409A. To read the full update, click here.