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Severance Agreements

Severance agreements are binding contracts between an employee and the employer that govern the terms of a separation from employment. Typically, an employer will offer some money as "severance" and in exchange the employee will be required to the sign the severance agreement. Employers offer these agreements for many reasons, including plain old good business sense and also so that they will have an assurance that there are no legal issues remaining between the parties.

Severance agreements almost always include a release of claims that states in very big terms (for example noting that the release covers all claims "from the beginning of time . . .") that the employee is releasing his claims against the employer. While there are claims that survive a release of all claims, these provisions are of great import because of the vastness of the legal rights being released.

Severance agreements usually also include an employee agreement on:

(i) confidentiality; and

(ii) non-disparagement, that the employee will not say anything to harm the employer's business operations.

Employees consider their own interests in negotiating and finalizing severance agreements. Employee provisions include:

(i) no challenge to unemployment compensation benefit application;

(ii) a neutral or better reference from the employer; and

(iii) a "mutual" non-disparagement clause, that the employer agrees not to disparage the employee.

What to call the reason for the separation from employment (for example, lay-off due to reorganization, lay-off due to lack of work, resignation, resignation in lieu of termination, leave of absence) can be negotiated between the parties as part of the severance agreement. Note that there are implications to this decision especially in regards to eligibility for unemployment insurance compensation.

These agreements almost always state within them that the employee has had the opportunity to review the agreement with an attorney and should afford the employee with the time to do so. If the employee is forty years or older, note that the Age Discrimination in Employment Act requires that the employer provide at least 21 days to consider and review the severance agreement proposal.

If you have questions about severance agreements generally or one in particular call Charny & Wheeler for a free telephone consultation.

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