Explain my severance - no consideration absent execution
Explanation of this common clause contained in most severance agreements.
What is it?The No Consideration Absent Execution Clause makes clear that the money (or other consideration) the employee gets pursuant to a severance agreement is separate and apart from anything else the employee is otherwise entitled to. For any contract (and severance agreements are contracts) to be valid, each party has to get something. If the employee only gets what he/she is already entitled to (e.g. already earned wages, commissions, or bonuses), then that employee gets no consideration by virtue of the severance agreement.
What does it mean?The No Consideration Absent Execution Clause means that if the employee does not sign the agreement, the employee does not get the consideration laid out in the severance agreement. This does not mean that the employee does not get what he/she has already earned, only that the employee gets nothing more.
What's the point?The No Consideration Absent Execution Clause is a fairly standard "bells and whistles" provision in a severance agreement. It is there to provide evidence that the employee got something of value in exchange for their promises (agreement not to sue, disparage, or disclose secrets of the company, etc.). Honestly, it does not add a lot of value, because ultimately, the company if a company has to defend a severance agreement, it will have to show that the employee received consideration regardless of a No Consideration Absent Execution Clause. On the flip side, an employee should not expect to receive the benefits of severance if he or she is not willing to sign the agreement.
The upshotA basic principle of contracts is that each side has to get something for a contract to be valid. Thus, if the only thing the employee gets is something to which he/she is already entitled, that employee did not get anything at all. A No Consideration Absent Execution Clause makes more clear that the employee is getting something "extra" in exchange for his or her promises, and that he/she gets nothing if they do not sign. The tough question is usually not whether the employee is getting something in exchange for signing a severance agreement, the real question is whether the employee is getting enough given the value of his or her promises (helpful article).