Severance And Separation Agreements: Understand What You Are Signing
In this era of continued layoffs and involuntary separations from employment, dismissed employees are almost always asked to sign multi-page separation agreements as a pre-condition to receiving severance benefits. In the absence of a preexisting contract or personnel policy that guarantees a separated worker entitlement to severance benefits, it is absolutely legal for a company to condition the paying of these benefits on the employee signing the agreement. However, it is crucial that an employee understand both the benefits she is receiving from the agreement and the important legal rights that are being relinquished by the signing of the agreement.
ESSENTIAL PROVISIONS OF THE AGREEMENT
Of the provisions typically contained in a separation agreement, the following are among the most essential to fully understand:
Payment/Benefits to be Paid: The exact amount of monetary compensation to be paid and other extended fringe benefits that are included such as payment for medical insurance and outplacement services should be precisely detailed including all terms for when and how the payments are to be made.
Waiver and releases of all legal claims: In order for the Agreement to constitute a valid release of all employment related claims, the employee’s waiver of the claims must be “knowing" and “voluntary." Therefore, there will be at least one, and possibly more, paragraphs detailing the legal claims that are being released, similar to the below:
Release of Claims:In consideration for the obligations of both parties set forth in this Agreement and for other valuable consideration, Employee, on behalf of herself and her respective heirs, executors, and assigns, hereby fully and forever releases Employer and its officers, directors, employees, administrators, successor corporations and assigns (collectively the “Releasees"), of and from any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that any of them may possess arising from any omissions, acts or facts that have occurred up until and including the date of this Agreement including, without limitation:
a) Any and all claims relating to or arising from employee’s employment relationship or other association with employer the termination of that relationship or association;
b) Any and all claims for wrongful discharge of employment; breach of contract, both express and implied; breach of the covenant of good faith and fair dealing; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; negligence; defamation; discrimination on the basis of gender, medical condition, age, or any other basis prohibited by law; and harassment;
c) Any and all claims for violation of any federal, state or municipal statute, including, but not limited to the Civil Rights Act of 1866, as amended, the Civil Rights Act of 1964, as amended, the [applicable state] Fair Employment Act, as amended, the federal and state family leave acts, the Age Discrimination in Employment Act of 1967 (29 U.S.C.section 621 et seq.), the Older Workers' Benefit Protection Act, the Americans with Disabilities Act of 1990, and the Civil Rights Act of 1991; and
d) Any and all claims for attorneys' fees and costs.
Non-Disparagement Clauses: These clauses stipulate that the employee will make no oral or written defamatory, negative or denigrating comments about the company and its officers and principals. As a means of enforcing these provisions, employers generally include language that, if breached, the employee will forfeit the money received or have to pay liquidated damages.
Relinquishment of Future Employment Rights with Company: Where the employee is departing because of a specific dispute with the company and/or has threatened to sue the company, it is commonplace for employers to include language that the employee is barred from applying for any future employment with the company and its affiliates and subsidiaries.
Confidentiality Provisions: The Agreement usually includes a confidentiality provision. These provisions typically forbid the employee from disclosing the terms of the agreement to anyone other than her attorneys, accountants/tax advisors and spouse.
Revocation Rights/21 Days Consideration if Over 40: Pursuant to the federal Older Workers Benefit Protection Act (“OWBPA"), persons 40 years of age and older must be given a minimum of 21 days to consider a proposed separation agreement where it involves a release of legal claims. In addition, the OWBPA mandates that persons 40 and older must be given a 7 day period to revoke the agreement after it has been signed.
RIGHT TO NEGOTIATE—DO NOT BE AFRAID TO ASK FOR MORE
While the employer always prefers that you sign the Agreement exactly as presented to you, the employee always retains the right to attempt to negotiate a better deal. Your ability to get more than what the employer is offering depends on several factors. For instance, if the employer is concerned that you might have a strong legal challenge to being terminated, it is more likely to agree to a better compensation package. On the other hand, if you just have the misfortune of being included as part of a large company-wide layoff, it is far less probable that the employer will offer better terms. In any event, do not be afraid to try to bargain for more—while the employer retains the power to revoke an offered separation agreement until it has been accepted, it is extremely unlikely that it will do so merely because you make a good faith attempt to bargain for a better deal. If you are uncomfortable attempting to negotiate for yourself, you can look to retain the services of an attorney to assist you.
IF YOU HAVE ANY QUESTIONS ABOUT THE TERMS OF THE AGREEMENT OR BELIEVE THAT YOU HAVE ANY POTENTIAL LEGAL CLAIMS AGAINST YOUR EMPLOYER THAN DO NOT SIGN THE AGREEMENT UNTIL YOU HAVE CONSULTED AN ATTORNEY!
Once the Agreement has been signed and any revocation rights expire, you will no longer be able to bring any claims against your former employer. Occasionally, a former employee attempts to bring a legal action on the basis that he was coerced, forced or tricked into signing an Agreement. These claims rarely, if ever, are successful. The time to determine if any legal action against the company is possible is before the Agreement is signed.