What kinds of terms are in a typical Severance Agreement?
*This is a transcript of the Facebook Live video from 5-3-18 Click here to watch the video.
That’s a great question. Typically the first term is what kind of severance payment is there going to be, one week, two weeks pay, six months pay, two years pay, or just a number? So how much severance payments are going to be made? Next one might be, what’s going to happen with health insurance? Is COBRA an issue? Is the person going to be on the payroll for a particular period of time and then terminated and then COBRA so that that elongates the health insurance? In a one-off situation particularly, sometimes that can be negotiated. Sometimes they’ll be a provision in the agreement that the employee will provide some consulting services or be available for consult services as a transition is part of the consideration for the payments.
Frequently there’s a non-competition, or a non-solicitation, confidentiality provision, or other restriction on the employee’s ability to get a future job. We did a Facebook live chat about that not too terribly long ago that we spent one whole show talking about non-competes, and non-solicitation clauses and that sort of thing. But that really does affect the value of the severance agreement if the payments aren’t relational to the amount of time that the worker has to be out of the work force is part of the agreement. You really want to make sure that you really analyze that carefully and find out if the payments are being made, compensate you fairly for the restrictions that it may put on you.
As I say, one of the big provisions is going to be a release of liability. Every severance agreement or separation agreement should contain if the employer is smart, a release of all liability for all known and unknown claims up to that point in time. And so that’s one area where you really want to ask a lawyer, “Hey, am I signing away a bunch of rights that I may not realize that I have? And are those rights that I’m signing way commiserate relational to the separation pay that’s being made?
If you’re an employee over 40, then the Older Worker’s Benefit Act requires the employer to give you 21 days to review the document. It should advise you to consult an attorney, and then it would give you seven days after you sign it to revoke your acceptance. So if you see those in a separation agreement, some people take that personally because it seems kind of strange, but the reason that those terms are in there is to comply with the Older Worker’s Benefit Act. You should always when presented with one of these agreements before you sign it, it’s a good investment to hire a lawyer for a consultation and for that lawyer to go over with you the terms of the agreement. Make sure you understand what you’re signing.
Severance agreements can also contain cooperation clauses that may require the worker to cooperate with ligation or investigations, that sort of thing on an ongoing basis. Those are the primary terms of an agreement like that and one thing you want to look for is what are the penalties for violating the agreement? The agreement may say that the company’s entitled to an injunction and may say that if you violate the agreement, and they have to enforce the agreement, that you have to pay their attorney’s fees, costs of expenses of pursuing you. It’s just really good to understand what all of those clauses mean.