Separation Agreement Considerations

Employers often utilize separation agreements for departing employees. They are used to allow employees who are separating to receive certain benefits (i.e., severance compensation) in exchange for their agreement to release the employer of certain claims. There are numerous issues employers ought to consider as they prepare such Separation Agreements.

Compensation. The agreement should clearly spell out exactly the amount and nature of all compensation the departing employee will receive in return for his/her agreement not to file claims. All wages and benefits to be provided should be specified. All such compensation should be in addition to what the employee is entitled to per existing employer policy and practice, and the agreement should state that as well. The tax treatment of all compensation provided should be spelled out, as appropriate, as should the timing and method of payment.

Details Relating to Separation. An employer may choose to indicate in an agreement the reasons for the individual's departure, such as termination, layoff, resignation, and so forth, depending on individual circumstances. It may be beneficial in many circumstances to simply indicate that the individual has separated, or will separate, from employment. The individual's last date of employment should be included as well.

Release and Waiver of Claims. It is very important that the agreement describe which claims are being released, as well as which entities and/or individuals are being released from such claims. There are various legal requirements for an effective release and waiver of claims, which often can vary by state, so it is very important that employers consult with counsel to ensure releases and waivers will be enforceable. Additionally, to the extent that pending claims of the employee are being dismissed or withdrawn as part of the agreement, that should be specifically described as well.

Confidentiality. If the employer expects the terms of the agreement to be kept confidential, it needs to set forth that obligation explicitly. Details about exactly what is to be kept confidential, as well as any exceptions allowed should also be expressed clearly.

Nondisparagement. Employers may want to include language detailing what employees can and cannot say about their employment and the circumstances of their departure.

Post-Employment Cooperation. The employer may want the ability to assign certain tasks or obtain certain assistance from employees after their employment ends. If so, the terms of such post-employment cooperation should be detailed in the agreement.

References. If the employer is providing the employee with a reference of some sort, that information should be provided.

Dispute Resolution. Separation agreements can lead to subsequent disputes over the terms of the agreement. Parties to separation agreements often agree to have such disputes heard by an arbitrator. Other agreements may provide for such disputes to be heard in a particular court. Regardless of what ultimately is agreed upon, the agreement should be clear on when and how disputes are resolved.

Return of Property. If the employee has any property owned by the employer that the employer wants returned, that issue should be dealt with in the agreement. Employers may seek to have payment of some or all compensation provided for in the agreement contingent on the return of such property.

Post-Employment Competition. Employers may have legitimate concerns about former employees engaging in competition or soliciting employees or customers of the employer. This is yet another area where legal requirements must be considered, and employers should consult with counsel about what may and may not be included in such provisions.