As an employer, it would be to your advantage to craft a severance agreement for a departing employee to protect your company’s reputation, its intellectual property and other interests.
Although such contracts customarily are discussed following a termination, in some cases the severance agreement could be “built in” to the initial employment agreement. It might appear counterintuitive, but many organizations address separation issues when they hire key employees to add an element of predictability to the termination of the employment relationship.
In many cases, the employer uses a severance agreement as a strategy to avoid a potential lawsuit. These lawsuits can arise from wrongful termination claims. If this is a concern, then incorporating a release, an agreement not to sue in exchange for certain benefits, into the severance agreement is a good strategy. If you are considering such a strategy, you need to consult an attorney who specializes in employment issues to ensure that you are complying with all state and federal laws.
The following are important points to consider in drafting separation agreements. These suggestions all apply in prospering a separation agreement at the time of termination.
• As an employer, your task is to fully understand what you are giving up and negotiate the most advantageous exchange of benefits from your company.
• Be mindful of the standard “integration clause,” which states that all promises and understandings have been fully integrated into your agreement. An employer can inadvertently extinguish rights under an already restrictive covenant agreement if the employer wishes to include or expand the scope of a restrictive covenant in the contract or in a separate agreement, and then the employee may wish to ask for additional compensation.
• The employment agreement might explain certain circumstances in which a separation package will be provided if the employer ends the relationship, describes the package and makes clear that a release agreement must be signed to receive this package.
• Understand that most severance agreements seek to create an affirmative duty on the employee’s part to cooperate with the employer in the future. The employer should try to make these restrictions and releases mutual.
• The employer should resist any attempt to qualify or make contingent any benefit or right to which the employee is not entitled.
• Employers should probably give employees a reasonable amount of time to review and sign the agreement, at least five days. Employees may want to consult with an attorney during this time period
• The release seeks a waiver of claims under the Age Discrimination in Employment Act which covers those 40 years and older who are covered by the Older Workers Benefit Protection Act, which requires a minimum of 21 days to consider the offer, seven days to change their mind once the agreement is signed and contains a clear reference to waiver of said rights. The agreement also is required to advise the employee in writing that they have the right to consult with an attorney before signing the proposed release. In certain cases where two or more employees are being fired and a release sought, the employees must be given 45 days to review the document rather than 21 and information about titles and ages of those in the “decisional unit” who were fired and not fired.
• Engage an attorney to evaluate if your agreement complies with federal and state laws and that it is fair and appropriate.
• Don’t underestimate your employee in negotiating the severance agreement, and understand that they may have sought the advice of an attorney.
Other suggestions regarding severance summarized in www.nolo.com include: You must give the employee something in exchange for the release; be clear about the rights the employee is waiving; give the employee plenty of time to decide whether to sign; and avoid any hint of coercion.
It is clear that employees are becoming more sophisticated and aware of their rights when it comes to severance agreements. The Internet contains numerous articles on the subject, including sample agreements. It is critical that an employer who is considering the use of a severance agreement to protect intellectual property or eliminate a potential lawsuit consult with an employment attorney before offer such an agreement to an employee.
Cary Silverstein, MBA, is the president and chief executive officer of Fox Point-based Strategic Management Associates LLC. He can be reached at 414) 352-5140 or
via email at SBTCompanyDoctor@aol.com.
