SEVERANCE REVIEW AND NEGOTIATION
A severance or separation agreement is a contract between an employer and an employee that sets forth the terms of an employment termination. Such an agreement typically specifies what severance benefits the employee will receive from the employer, such as continuation of salary and medical benefits for a period of time or an initial offer in the form of a “calculated” lump sum payment representing severance pay and accrued bonus compensation.
In exchange, the agreement typically includes a “General Release” by the employee of any and all claims against the employer. The agreement may also include promises by the employee not to disparage the employer, to cooperate with the employer post-employment, to refrain from soliciting clients and employees, or to refrain from competing against the employer for a period of time. The issues surrounding severance are at times lengthy and complex. Common questions concerning compensation, communications to prospective employers, colleagues, and others, outplacement services, insurance and fringe benefits, post-employment obligations and cooperation, year end bonuses, unvested or unexercised stock options, and others can arise in a myriad of fact patterns.
Besides the value of the package, there are several types of clauses in almost all severance agreements that employees should be aware of. At the Law Office of Nicole Conger, PLLC, she is able to negotiate the language, compensation, and more favorable terms in the following areas, which include but are not limited to:
The Severance Payment
If an employee is already entitled to receive a severance payment, whether pursuant to an employment contract or company policy, there is no need to sign a severance agreement to get that money. However, Nicole can help ensure that if the employee does sign an agreement, it provides more than any severance payment the worker was already entitled to. Nicole is able to sense whether the amount of severance the employer is offering is within the usual range for the relevant profession, industry, or Executive level status.
Money the Employer Owes
An employer who owes employee money-e.g., for unused vacation time or unreimbursed expenses-must pay it regardless of whether a severance agreement is signed. If the parties do plan to sign one, it should include a date by which the employer must pay what it already owes the employee.
A severance agreement should explain what benefits the employee will receive upon separating from the employer, such as any continuation of health coverage (if any) and the employee’s right to stay in the employer’s medical plan temporarily under the federal COBRA law.
Release of Claims
Employers usually want severance agreements to get one concession in particular: a release by the employee of all legal claims against the employer. The general releases that employers draft often require employees to give away everything. Nicole can fight to make the release more balanced, for instance, by making it “mutual” so the employer releases any claims it may have against the employee. There are several potential claims and entitlements not to release in a severance agreement: any rights under COBRA; the right to seek unemployment insurance benefits uncontested by the employer; the entitlement to any accrued and vested pension benefits, stock options, restricted shares, or other benefits provided by company plans; the right to take legal action to enforce the severance agreement itself; and any right to indemnification (legal protection against claims from a third party) by the employer.
Non-Disparagement and References
Severance agreements usually include a clause barring the employee from disparaging the former employer. Nicole can negotiate for a reciprocal prohibition on the employer (or, more specifically, a select group of employees, which can include executives) against disparaging the worker. Nicole is also able to negotiate how references will be handled and what information will be provided to potential future employers.
Any oral promise an employer makes to the employee is not binding unless it is written down in the severance agreement that the parties sign. If “under the table” or handshake assurances are not honored, the employee is out of luck as they are very rarely enforceable in court. Nicole can help make sure that all of the employer’s promises will be enforceable.
Employers usually use severance agreements to prevent former employees from using proprietary information in their future work. Nicole works with her clients to identify and document the return of all proprietary information. In some cases, Nicole negotiates a “carve-out” of certain information that is valuable to the employee such as performance evaluations so it can be used in future employment or business.
Many employees are bound by non-compete and non-solicit agreements created in employment contracts or other documents they have signed. These agreements prohibit the employee from competing with the employer in certain areas for a specific amount of time, and from hiring other workers away from the employer. Where these restrictions already exist, Nicole ensures that the severance agreement does not expand them for her clients. Where her client has not already entered agreements on these topics, Nicole works to limit the time and scope of restrictions the separation agreement imposes.
Employers emphasize the importance of keeping the severance agreement and its terms confidential, but Nicole negotiates these terms so they allow the employee to inform immediate family, attorneys, accountants, and tax advisors of the agreement’s contents. There may also be a part where if the employee receives a subpoena, he or she will testify fully and truthfully in court regardless of the confidentiality provision.
Severance agreements often require the employee to cooperate fully with any legal proceeding or investigation involving the employer. Nicole frequently negotiates to scale back this provision by changing the requirement from “full” cooperation to “reasonable” or other similar language so that cooperation that suits the employee’s schedule. Nicole also seeks to add details of charges for any costs the employee incurs as a result of cooperating, such as travel, legal expenses, and the cost of his or her time, to the employer.