Employment Separation and Severance Agreements

So, you and your employer are parting ways. Maybe you resigned or were laid off. Or perhaps your employer fired you. Regardless of the reason for the employment separation, your soon-to-be former employer may provide you with a separation or severance agreement for you to consider. Whether you decide to sign it is entirely up to you. There are often several benefits to signing these agreements. But you’re also typically forfeiting several rights when you do.

As a result, it’s critical you fully understand the agreement. It outlines your obligations as a former employee. You’ll get a certain amount of time to review it. During this period, consider speaking with a qualified employment attorney. They can explain the implications of the agreement’s various terms and conditions. They may also potentially negotiate more favorable terms for you.

While each separation agreement is unique, we’ll explore some commonly used provisions in this article. But first, let’s make sure we know what exactly a separation agreement is.

Separation Agreements

An employee separation agreement is a contract between an employer and an employee who is leaving the company. This legal document includes details about the separation. It may include things like:

• Last working day
• Severance pay
• Continuing benefits

It also outlines the terms and conditions proposed to govern the parties upon separation. Generally, the employer offers extra money and/or severance benefits in exchange for the employee’s agreement to the terms.

Signing the contract typically means the employee agrees not to sue the employer for wrongful termination and/or other claims related to their employment.

“Severance agreements” technically focus on the terms of the severance package. But they often include all the terms of a “separation agreement.” As such, we often use these terms interchangeably.

Why Are Separation Agreements Used?

The main purpose of these agreements is to protect the employer and employee by clearly stating what each party agrees to do after the employment ends.

Employers often use these agreements to avoid potential legal issues or to extend additional benefits to the departing employee.

For employees, these agreements can provide financial benefits and a clear understanding of their rights and obligations after separation.

Common Provisions

Separation agreements can vary widely. This is in part because both state and federal law govern their requirements and enforceability. Still, they frequently include provisions addressing the following items.

Severance Pay

This is the money offered to the employee when they leave an organization. The amount of severance pay can vary based on the length of employment and reason for separation.

Generally, the employee must sign a separation or severance agreement to receive the severance package. The agreement typically specifies how the employee will receive severance payments. This may be as a lump sum or in intervals over a period.

Benefits Continuation

The agreement also generally includes details about the employee’s eligibility for continued benefits, like health insurance.

The federal Consolidated Omnibus Budget Reconciliation Act (COBRA) allows many terminated employees to keep their healthcare insurance for up to 18 months.

Confidentiality/Non-Disclosure

We regularly see non-disclosure or confidentiality clauses in these agreements as well. These provisions can require one or both parties to keep certain information confidential. This can include proprietary information like trade secrets and business plans. It can also refer to an employer’s obligation to keep confidential information about the employee, their employment, or their separation.

Non-Compete Clause

Some agreements include a covenant not to compete. We also call this a non-compete clause. It can prevent the employee from competing with the employer or working for a competitor.

To be enforceable, these covenants generally need to be reasonable and finite in scope.

Company Property

These agreements usually address how the employee must return company property. This usually pertains to laptops, phones, and any other company items.

Release of Claims

A release of claims in an employee separation agreement is essentially a waiver. When an employee agrees to release or waive claims, they agree to forfeit their rights to pursue legal action related to their employment against the employer. This may include legal claims of

• Wrongful termination
• Discrimination
• Harassment

Some claims, like workers' compensation and unemployment benefits, however, can’t be waived.

References

The agreement may include details about how the employer will provide references for the employee in the future. This can help the employee find a new job more easily.

Non-Solicitation

A non-solicitation clause prevents the departing employee from trying to

• Convince other employees to leave the organization
• Steal the employer's clients

Like non-compete clauses, non-solicitation provisions must be limited and are subject to specific restrictions.

Older Workers Benefit Protection Act

For most employees aged 40+ who are asked to waive age discrimination claims, the Older Workers Benefit Protection Act (OWBP) applies. This federal law requires specific language about the Age Discrimination in Employment Act (ADEA) in the agreement. The OWBPA aims to protect older workers from age discrimination, particularly in the context of layoffs and separation agreements.

Outplacement Services

Sometimes, employers offer placement help as part of the separation. This could include career counseling, resume writing, or job search services. If so, the agreement typically outlines the terms of these offerings.

Final Paycheck

The severance or separation agreement also usually says when the employee will receive their final paycheck. It should also detail payment arrangements for any unused vacation or sick days.

Non-Disparagement

Mutual non-disparagement clauses are also quite common. They prohibit the parties from saying bad things about each other. These provisions typically cover social media and often explicitly mention it as a medium where disparaging comments are prohibited. Non-disparagement clauses help protect both parties' reputations after the separation.

Arbitration Clause

Employee separation agreements also frequently have a provision called an “arbitration clause.” This typically obligates the parties to resolve disputes through arbitration.

Arbitration is a private dispute resolution process where an impartial third party (the arbitrator) reviews evidence and makes a final and binding decision.

While arbitration has its benefits, it often requires forfeiture of the employee’s rights to a jury and other legal protections. If your proposed agreement includes an arbitration clause, proceed cautiously. Seek legal advice before agreeing to it to ensure you understand its practical effects.

Governing Law and Jurisdiction

Many employers include language specifying which state's laws will govern if a dispute about the agreement arises. This section or provision might also identify the venue where any legal action would be addressed.

Attorney’s Fees

Separation agreements also often outline how attorney's fees will be handled if there's a future conflict.

Before You Sign

It’s important you have a full understanding of the rights you’re giving up before signing a separation or severance agreement. You’re often receiving a severance package because your forfeiture of these rights and release of relevant claims is valuable to the employer. As such, you may find that many of the terms offered in your proposed agreement are negotiable.

For the most effective review and negotiation of your separation agreement, consider enlisting the help of an attorney well-versed in the federal and state employment laws applicable to your specific situation. You can easily connect with local experts by clicking on your state in Findlaw’s directory of dedicated employment attorneys. You can also narrow your search results by city.

Give yourself the peace of mind that comes with legal guidance at this critical time. These agreements can have lasting impacts on your life and career. Make sure your decisions are well-informed.