Separation Agreements – How to Make Them Work

28 October 2012 Labor & Employment Law Perspectives Blog

Employers often utilize separation agreements for departing employees. In the most common situations, employees who are separating receive certain benefits in return for their agreement to release the employer and related parties from all claims relating to their employment. While there are numerous ways to approach such agreements, there are certain issues employers are well advised to consider regardless of the particular circumstances:

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 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 Additionally, to the extent that pending claims of the employee are being dismissed or withdrawn as part of the agreement, that should be specifically described as well.

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 (such as communications to spouse, financial advisors, and so forth) should also be expressed clearly.

Employers may want to include language detailing what employees can and cannot say about their employment and the circumstances of their departure. There can be limitations on what is allowable in this regard, and this is another area that should be discussed with counsel as needed.

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 carefully detailed in the agreement.

If the employer is providing the employee with a reference of some sort, that information should be provided. Alternatively, the parties may choose to agree upon what the employer will say if contacted by potential employers of the individual, as well as to whom such employers will be referred.

Dispute Resolution
Separation agreements can lead to subsequent disputes over the terms of the agreement. For example, the parties may argue over alleged breaches of confidentiality or nondisparagement obligations. 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. Additionally, if the parties agree upon specific remedies to be imposed in the case of particular violations of the agreement, those remedies should be detailed as well. In order to be certain that desired remedies are in fact enforceable, employers should consult with counsel on this topic.

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.

Employers should take great care in crafting separation agreements. If done properly, they can provide employers with the security and protection that they are paying for via the compensation being provided.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services