Severance Agreements

Severance agreements, also sometimes called separation agreements, are more and more common when a company terminates a person’s employment. In the best cases, a severance agreement provides the employee with financial and other assistance, while at the same time, protecting the employer from legal action.

Employee Concerns

As an employee, it is important to remember that a severance agreement is a contract. There is no law requiring employers to offer a severance packages to employees, so the offer would not be made unless it benefited the employer in some way.

Before signing anything, it is important for an employee to consult legal counsel with specific experience in reviewing and negotiating severance agreements to determine what, if any, rights or claims you may be giving up.

Severance agreements usually include a release of an employee’s right to sue the employer. If you think you have been wrongfully terminated because of race, sex, religion or some other discriminatory reason, you may want to think twice about signing. The benefits of signing a severance agreement should be carefully weighed against claims an employee might have against an employer, the likelihood of winning a court case or settlement, and the probable costs.

It is also important to have an attorney determine if the agreement is fair and reasonable. Severance agreements are often negotiable and it may be necessary to negotiate such aspects of the agreement as compensation, non-compete, confidentiality or non-disclosure clauses; stock options, out-placement assistance, and other provisions.

In some cases, employers are required to provide a period of time for an employee to consider the agreement and the employer may not rescind the offer during the waiting period.

Employer Cautions

Employers must be careful to draft fair, legal and enforceable severance agreements in order to obtain the desired result of limiting exposure to lawsuits down the road.

Effective settlement agreements have certain aspects in common, they must be in writing, must be signed by the employee, must be supported by adequate consideration and should be easy to read. It is important to ensure that the employee understands the agreement and signs it willingly.

To survive a court challenge, it is helpful to be able to show that the employee had a sufficient amount of time to think about signing the agreement. Moreover, if the agreement is seeking a release of any claims for age discrimination, an employee must be given 21 days to consider the agreement, then seven days to rescind after signing. It is often useful to encourage an employee to review the agreement with an attorney before signing it and to negotiate some of the terms and conditions of the release.

Employers should consult with an attorney experienced in employment law and the preparation of severance agreements in order to ensure that all relevant statutory and procedural requirements are met.