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Severance Agreements: What To Include And Exclude

Mon May 1, 2017 Publications

When an employee is involuntarily separated from employment, a severance agreement can provide a graceful exit. However, if the agreement is not properly drafted, it can create additional problems resulting in litigation over the very words chosen. Here are a few points to consider when drafting a severance agreement.

Where there is a broad general release of claims, consider including a savings clause that permits the employee to file charges of potential violations of law to governmental agencies like the Equal Employment Opportunity Commission, Florida Commission on Human Relations, and other fair employment practices agencies and to participate in administrative proceedings brought by others. The EEOC posits that it is unlawful for an employer to include overly broad waivers which purport to prohibit employees from exercising these rights, including the right to accept financial recovery from the EEOC and to not be required to arbitrate claims which might be raised otherwise in an EEOC charge. To avoid this issue, consider including a savings clause, a provision advising the employee to consult with an attorney, and a statement that the employee fully understands and voluntarily accepts the agreement’s terms.

Where there is a broad confidentiality provision, consider including a carve out provision permitting the employee to report possible violations of federal law or regulation to any government agency or entity, including but not limited to the Equal Employment Opportunity Commission, Florida Commission on Human Relations, and Securities and Exchange Commission, or making other disclosures that are protected under the whistleblower provisions of law. The SEC has taken the position that in businesses subjected to its regulations, an employer cannot use agreements that prohibit employees from disclosing information about the substance of an internal investigation, perhaps related to their separation, without prior authorization of the employer’s legal department. According to the SEC, this undermined purpose of the law which is to encourage individuals to report violations. Additionally, if the employee is a current employee covered by section 7 of the NLRA, be aware that section 7 provides that employers cannot restrict employees from discussing work conditions with other employees. Consider carving out these rights, too.

In all cases, consider a severability clause stating that any clause found by a court to be unenforceable will be deemed deleted from the agreement, and the remaining provisions will be valid and enforceable. This will help to ensure the continuing validity of the severance agreement even if the former employee later sues, claiming a particular provision is invalid.

Other topics to address in a severance agreement include cooperation with the employer in any litigation against the employer, taxability of benefits, unpaid wages and benefits including accrued paid leave, unemployment benefits (whether employer will or will not challenge), and noncompete and nonsolicitation agreements.

With these considerations in mind, the severance agreement can end the employment relationship with both positivity and finality.