Severance Agreements

Since I represent employers and employees, I have mixed feelings about severance agreements. Originally, severance was a benefit that was offered to employees to reward them for their length of service and loyalty to the company. That original concept has evolved. Today, a severance agreement can include a number of things:

1. A financial payment to employees

2. A release of all claims

3. A confidentiality agreement

4. A non-solicitation agreement

5. A non-competition agreement

6. A non-disparagement agreement (i.e. you are not going to bad mouth the company)

7. A catch-all for everything the employer didn’t get around to having you sign before they decided to eliminate your position.

Too often, employees sign these documents without question. Their rationale is that it is a standard document as if there is a form severance agreement that every employer must use. There isn’t, although the waiver of rights under certain laws may require the employer to include warnings or notices.

Virtually, every severance agreement includes something similar to the following language:

This Agreement constitutes the entire agreement between John Doe and The Company and supersedes any prior agreements or understandings, express or implied, pertaining to the terms of John Doe’s employment with The Company, the termination hereof, or any other matter related to any claim John Doe may have against The Company. John Doe acknowledges that in executing this Agreement he does not rely upon any representation or statement made by The Company or any representative or agent of The Company concerning the subject matter of this Agreement except as expressly set forth in the text of this Agreement.

In plain English, if it’s not in the severance agreement it didn’t happen and the employer does not have to do it because the severance agreement supersedes everything. In other words, if the employer promises to give you a glowing letter of recommendation, get it before you sign or address the issue in the agreement. If the employer owes you money for vacation and other accumulated PTO, that severance document should reflect you received that payment. If you are leaving on less than desirable terms, it may be advisable to address what information will be conveyed to future employers.

It’s not my goal to create a negative impression about severance agreements. I think they can be a valuable tool that allows an employer to tidy matters up while providing the employee with a financial benefit that will help them in their employment transition. My goal in writing this post is to convey to employees that you should read what you sign, understand what duties you and your employer have under the severance agreement, and get legal advice from an employment attorney before signing the agreement.