Severance Agreements – Documenting Employment Separations

When an employee is terminated, they often receive a severance package. While processing the intense emotions that come with a separation, the company and the employee have a contract to consider and finalize. This article provides answers to frequently asked questions to serve as a starting point for organizing your thoughts, both on the employer and employee side.

Lipp Law is available to assist you with navigating the separation process, tailored to further your best interests. Our firm assists business and employees with employment separation matters, giving us the ability to know all sides of the employment law equation for severance situations. This Q+A should not be taken as legal advice for your specific situation. If you need support, contact Lipp Law today.

Q: How much should the severance amount be?

A: The severance amount offered varies from case to case, depending on several factors that may include the length of employment, how the employee was treated, the employee’s position within the organization, and the separation reason. Evaluating the facts underlying your situation may yield leverage to adjust or lower the severance amount. Employers are not usually legally required to provide severance to an employee, unless there is a practice or policy of providing severance in the past, or a written severance plan. Some large companies have formal severance plans giving employees a certain number of weeks of severance per year of service, or in other situations, executives are given set severance amounts in their employment contract.

Beside the severance payment itself, there are other valuable bargaining chips that may be negotiated in the severance package.

This could include terms related to:

•  Waiver of legal claims
• How the severance payment is paid out (lump or installments)
• Separation reason
• Separation date
• Scope of non-compete or non-solicitation restrictions
• Client/customer restrictions
• Inventions or intellectual property (IP)
• Accumulated vacation time or paid time off (PTO)
• Consulting work
• Health care benefits
• Unemployment benefits
• Stock options or restricted stock units
• Retirement benefits
• Confidentiality
• Non-disparagement
• References
• Letters of recommendation
• Ability to re-apply or rehire eligibility

Q: What rights does the employee give up by signing the separation agreement?

A: In exchange for a severance payment, an employee waives their right to receive money for claims that it has (or may have) against the company, for the time period before the agreement was signed. These sections of severance agreements are often lengthy and include various exclusions to the waiver that are required by law. An attorney can assist with ensuring the language of this section is legal and fair, help you understand what it means, or assist with drafting ideal waiver language to ensure the claims at issue are properly waived.

Q: What do the non-compete and non-solicitation provisions mean?

A: Non-compete and non-solicitation provisions are often included in paperwork that employees sign when onboarding, but employers sometimes include them in severance agreements, as well. An attorney can assist you with determining the extent of these restrictions and whether they are likely enforceable under applicable law.

Alternatively, some severance agreements simply remind employees of the restrictive covenants that they entered when onboarding. An employee or employer may want to negotiate for modifications to these previously agreed upon restrictions as part of the severance agreement.

Q: What effect will the characterization of the termination have on the employee’s future?

A: An employee might have concerns that the description of the termination in the severance agreement is unfavorable, making securing new employment challenging. Depending on the employee’s future plans and the desired industry, adding language to the severance agreement about references or personnel records may be helpful.

If the parties are worried about the effect that termination reason may have on the employee’s ability to collect unemployment benefits, it is important to reach an agreement about the nature of the separation. Although benefits eligibility is ultimately up to the state unemployment agency, it eliminates a potential barrier for eligibility when both employee and employer agree on why the employment relationship ended.

These are just a handful of answers to questions that clients may have about severance agreements.  Lipp Law advises employees and companies on severance agreements, ensures that the unique details of your situation are considered when developing a negotiation plan, negotiates on your behalf, and supports clients who choose to negotiate on their own.  If you need assistance with drafting, negotiating, or reviewing a severance agreement, contact Lipp Law today.