Employee separations are not always amicable, and many businesses find it advantageous to offer a severance package in exchange for a release from the departing employee. The severance agreement typically involves some type of compensation from the employer, either in a lump sum payment or periodic payments for a set term. In exchange, the separated employee releases any possible legal claims against the employer and typically agrees to some restriction on speech about the employer and the employment experience.
While such agreements can provide a relatively quick, clean way of addressing potential legal claims that could result in both significant expense and negative publicity, there are risks as well. And, the terms and language of the severance agreement must be carefully formulated. Many employers do not have the detailed knowledge required to ensure that all critical terms are included, and that the language of the agreement is sufficiently clear and inclusive. Thus, working with an employment attorney who is experienced in the drafting and negotiation of employee severance and defamation agreements offers important protection to your business.
When a Severance Agreement Should be Offered
Some companies routinely offer severance packages to departing high-level employees, and routinely execute severance agreements with waivers of potential claims and anti-defamation agreements in connection with those packages. Others, though, will want to pursue such agreements only when there is some identified risk of litigation, bad press or other negative consequences associated with the employee separation.
Some key considerations for those companies making risk-based determination include:
- Whether the employee belongs to a legally protected class, particularly if that class is underrepresented in the company and/or the employee is to be replaced with someone who is not a member of that class
- Whether the employee has recently engaged in some type of protected activity, such as making a claim with the National Labor Relations Board (NLRB) or filing a workers’ compensation claim
- Whether the employee being terminated was employed pursuant to a contract and the employer has chosen to terminate that contract
Risks Associated with Employee Severance and Defamation Agreements
Although severance agreements are often offered to defuse potential conflicts and resolve possible claims before they get off the ground, in some cases the offer of such an agreement can have the opposite effect. Depending on the employee and the circumstances, the presentation of a list of possible claims to be released can trigger exploration of claims the employee may not even have considered.
Thus, the manner in which a proposed severance agreement is introduced and discussed can be as important to the success of the negotiation as the language of the agreement itself.
Drafting of Employee Severance Agreements
Drafting of the proposed severance agreement requires in-depth knowledge of the claims potentially available to a separated employee and the legal restrictions and requirements associated with waivers of employee claims. An attorney with experience in the drafting and negotiation of this type of agreement can be a powerful resource during this process.
The agreement will typically include:
- Compensation, which must be assessed based on the incentive to the employee to enter into the agreement and the value to the company of inducing the employee to agree
- A list of claims to be waived, which must be broadly inclusive and yet sufficiently specific to ensure that the employee cannot later claim that he or she did not understand that a particular claim was being waived
- An acknowledgment that the agreement is entered into voluntarily, which must be supportable by the actual circumstances surrounding the negotiation and agreement
In some cases, the employee will accept the terms of the agreement as offered. In other circumstances, the employee–directly or through counsel–will want to negotiate the terms of the agreement and the compensation offered. Allowing your employment lawyer to direct the negotiation process can help to defuse emotions often associated with a tense separation and keep the focus on the legal and practical aspects of the settlement.
Get Experienced Legal Assistance with Your Employee Severance Agreements
Most companies that enter into employee severance and defamation agreements do so to protect themselves from bad publicity, future legal claims, or both. If you are going to go to the trouble and expense of offering compensation to eliminate the risk of legal action or negative public commentary, it only makes sense to get the help and guidance you need to ensure that your agreement is effective. Our employment attorneys have the knowledge and experience required to help you resolve potential employee claims conclusively so that you can move forward with confidence.
