Basic Terms In A Severance Agreement

Basic Terms In A Severance Agreement

Laid off with a severance agreement to review?  What does all of that stuff in this agreement mean anyway?

Life is very stressful right now. COVID-19 and the shelter in place orders and the resulting economic meltdown have dealt many businesses severe—if not fatal—blows. For businesses trying to survive, making very tough decisions about laying off employees is part of survival.

It is brutal for the companies.  It is brutal for the affected employees and their families.  And it can cause confusion.  Often, a company will offer a severance agreement (also called a separation agreement) to an employee. For those who rarely look at separation agreements, this document can be confusing.

Most Severance Agreements Contain Basic Terms. These terms can include:  

  • The Money: Most of the time, the company will give the employee an amount of money and other benefits in exchange for the employee giving the employer a “release” of all possible claims. The other benefits can include things such as agreeing to pay insurance premiums for a period of time or agreeing to pay for outplacement.
  • The Release: One party agrees not to sue the other party.  Usually, the employee agrees to release any potential claims against the employer up to the date the employee signs the agreement. However, this can also be mutual where both the company and the employee agree not to sue the other party.
  • Confidentiality: Most agreements will require the employee to keep the terms of the agreement confidential. That means that the employee cannot disclose the terms of the package received to anyone. Usually, the employee may disclose to a spouse or immediate family, an attorney, a financial advisor and if otherwise required by law.
  • Re-employment rights: Some agreements will specify that the employee cannot reapply at the company if it accepts the separation payment. Other agreements specify that the employee has the right to reapply, but that some of the separation benefits may get offset if the employee is rehired.
  • Amount of time to sign/revocation rights: For employees over age 40, a company must include certain language in a separation agreement. The company must give the employee at least 21 days to consider the agreement (more time when a reduction in force). The company also has to tell the employee that the employee may have the agreement reviewed by an attorney and that, once the employee signs it, the employee may change his/her mind and revoke it for 7 days after signing.
  • Reminder of employee obligations: usually, the company will remind employees of their obligations to return company property and to continue to protect company confidential business information and trade secrets.

Like ice cream, separation or severance agreements come in many flavors and formats. Some are very simple. Some are over 10 pages long. Some are very complex.

What all have in common is that they involve important legal rights and obligations. So, every employee needs to know and understand what he or she is signing before actually signing it. If you are affected by a job termination and need help reviewing a separation agreement or severance agreement, contact us. We can help.