SEVERANCE AND RELEASE AGREEMENTS
Companies sometimes offer severance agreements to employees who are being terminated, but the extra pay rarely comes free. For consideration, employers often include provisions that limit the employee's ability to sue the employer or disclose information about the company. Absent specific contract terms or a defined severance benefit plan, an employer usually is not obligated to offer severance payments upon termination of employment. However, a variety of situations can lead to a severance agreement, which sometimes may be referred to as a separation and release agreement.
In some instances, good employees may fall subject to a layoff or job restructuring, prompting the employer to offer severance benefits to bridge the transition to new employment. In other cases, severance pay may be offered in order to secure a general release of claims where the employee alleges some type of unlawful or discriminatory action.
It is important to review carefully any proposed severance agreement to ensure that it is fair and legally enforceable. Here are some key factors to consider when reviewing a proposed severance agreement:
Are the terms of the severance agreement fair?
Every case is unique, but do not assume that every proposed severance agreement is in your best interest. The terms of the severance agreement should be fair and reasonable. For example, the agreement should provide adequate compensation for the employee, taking into account factors such as the employee's length of service, salary, and job duties. The agreement also should specify the circumstances under which the employee will receive the severance pay.
Are there any restrictive covenants?
Severance agreements often include restrictive covenants, such as non-compete, confidentiality, non-disparagement or non-disclosure clauses. It is important to review these provisions carefully to ensure that they comply with statutory law and remain reasonable and necessary to protect the employer's legitimate business interests. If the covenants are too broad in scope, duration or geographical boundaries, they may not be enforceable in Court. In some cases, the severance amount may not be adequate consideration for the terms of a non-compete if an employee is forgoing significant earning potential.
Are there any waivers of legal claims?
Almost all severance agreements include waivers and releases of all legal claims, including claims for discrimination or wrongful termination. It is important to review these waivers carefully to ensure that they comply with applicable laws and do not prevent the employee from pursuing legitimate claims against the employer. If you have a strong claim for wrongful termination, you should treat your severance agreement as a negotiation for the settlement of that claim.
Does the employee have adequate time to consider the agreement?
If you are over the age of 40, employers are required to give employees a reasonable amount of time to review and consider a severance agreement before signing it. This allows the employee to fully understand the terms of the agreement and seek advice from an attorney if necessary.
HAVE A LAWYER REVIEW YOUR AGREEMENT
Signing a severance or separation agreement with a general release of claims should never be taken lightly. Always consult with an attorney first.