Severance Agreements

Severance Agreements

Severance agreements are necessary instruments used to protect employers from future liability after voluntary or involuntary termination of an employee.  For professional and executive personnel, severance agreements are normally drafted at the beginning of the employment term and executed in conjunction with an employment agreement.  Weinberg Law Firm will help draft or negotiate the best terms for its corporate or executive clients.  We also pride ourselves on the work we do “behind the scenes” on behalf of our executives so that the situation is not escalated into an adversarial situation.

Severance agreements often depend on the terms in an employment agreement, length of service and status of the employee’s position.  Such an agreement sets forth the terms of separation from the company after employment is terminated.  Typically, severance agreements address issues such as separation compensation, continuation of health benefits under COBRA or a similar state program, transfer of retirement plan benefits, waiver of right to sue the employer, non-compete clauses, and confidentiality or non-disclosure protections.

Weinberg Law Firm will assist clients with reviewing, negotiating and drafting severance agreements and severance packages.  We help clients understand their rights and obligations under the agreement while also ensuring the agreement will protect their future interests.

We advise employers on the enforceability of severance agreements and advise employees of their rights when contemplating whether to sign such an agreement.  When necessary, we participate in negotiations and mediation that arise out of disputes surrounding severance agreements.

Common Questions:

Q. Our company is planning a layoff of 45 employees. Should we ask the employees to sign a release of claims in exchange for the severance payments we intend to give them?  The CEO thinks that if the company asks for such a release, the employees will think management is guilty of something and the employees will think they have a lawsuit against the company.  For this reason, the CEO does not want to ask for such releases.  Do you agree with his strategy?

No.  The company needs to minimize potential lawsuits (even if such claims eventually prove baseless) by obtaining a release of claims.  From a practical standpoint, if a company is paying out money it is not otherwise obligated  to pay, it should receive the benefit of a release of claims.  Granted, some employees may think the company is trying to cover up wrongful treatment, but they may think so even absent a request for a release.  Moreover, if an employee is paid money with no strings attached, he can use that money to finance a lawsuit against the company.  Additionally, the release is a good opportunity to include provisions that remind the employee of prior confidentiality and no solicitation agreements  previously imposed on the employee. If an employee is over 40 years of age, certain mandatory provisions must be included under federal law. For this reason, legal counsel should be consulted in drafting such releases.

Q. I am a 50 year old CFO of a mortgage company and have been offered a severance package.   The company has advised me to seek legal counsel to review the severance and release agreement.  Is this really beneficial to me?

It can be beneficial for both you and the company.  Under Federal law, an employee who is over 40 years of age can only release a claim for age discrimination by having certain legal requirements set forth in the release.  One of those requirements is that the employee must be advised to have legal counsel review the release agreement.  Additionally, an attorney may point out language that may hamper an employee’s efforts to find another job, such as signing an overly broad no solicitation provision.  Legal counsel may also suggest additional benefits an employee may want to obtain before signing the release.  For instance, an employee may be entitled to accelerated stock-options or a pro rata share of an annual bonus.  Further, an attorney should assess whether the employee is giving up any legal claims against the company.  Sometimes, companies will reimburse an executive for reasonable attorneys’ fees incurred for reviewing the release.    Before hiring an attorney, an employee should ask about the attorney’s experience in drafting and reviewing such releases.