What are Common Terms Contained in Severance Agreements?

While the exchange for a payment of money for a release of legal claims are the most common terms included in a severance agreement, there are often many other terms included in a severance agreement that employees need to fully understand before executing the agreement. Severance agreements can include terms and conditions that if agreed to by the employee, could have a significant economic impact on him or her well into the future. If you have been terminated from your employment and presented with a severance agreement, it is well-advised to engage an experienced employment attorney to review the circumstances of the termination, the terms and conditions of the severance agreement and provide advice and counsel.

From an employee’s point of view, the payment of severance is typically the most motivating reason for agreeing to enter into a severance agreement. An at-will employee, who does not have a term contract, normally does not have any legal entitlement to payment of any monies that were not previously earned after the employment has been terminated by the employer. Therefore, providing severance to an employee is often very enticing to individuals who lose their job, and especially individuals who lose their job and have no viable employment claims to purse against the former employer. Some employers have policies in place in which they agree to pay an employee who is terminated without cause, a certain sum of money based upon their years of service or other consideration. There is no obligation under the law to provide an employee with severance, but many employers see the benefit of having a practice in place, whether they believe it is the right thing to do and/or see the importance of having terminated employees release their right to sue them.

There are other economic benefits that can be negotiated by a terminated employee in agreeing to sign a severance agreement. For example, some employers will agree to pay the COBRA premiums of a terminated employee’s health benefits for a certain period. An employee who is paid bonuses during their employment can also include payment of a bonus that they did not earn as an additional monetary term to be included in the severance agreement.

Employees who are provided access to company property during their employment to perform certain job duties may want to request that they can keep the company property as a part of severance agreement. For example, some employees are provided access to a car, cell phone, computer, etc. Employers routinely demand that a terminated employee returns these items because of the termination of employment as part of their normal course. Many times, the value of these items is greatly depreciated and the company may not care for them as much as the employee does who has grown accustomed to using the items in their daily life and may make sense to try to include as part of the separation package.

Another important consideration for a person who involuntarily loses his or her job is whether they will be eligible to receive unemployment benefits because of the termination of employment. While it is ultimately the decision of the New Jersey Department of Labor to determine whether an individual is eligible to receive unemployment benefits, the employer and employee can agree to acknowledge the reason for termination by expressly setting it forth in the severance agreement. For example, the employer can agree that the reason for the termination was a job elimination or for other reasons that were not for cause. It is important to remember that the information provided to the Department of Labor must be true and accurate and can be sworn under oath subject to the rules of perjury. So, while it may be advantageous to have an employer agree in writing that the reason for termination was not for misconduct or other reason that could disqualify someone from obtaining unemployment, the employee and the employer should never mispresent the reasons for termination to the Department of Labor.

From an employer’s point of view, there are many different terms and conditions that they may want to include in a severance agreement. As mentioned earlier, a release of their right to sue the employer for issues relating to their former employment or termination of employment is typically the most important term from the employer’s standpoint. Employment lawsuits are extremely costly and can be tremendously disruptive to the business operations of an employer. By having a terminated employee release their right to sue them in exchange for severance, an employer can save itself a lot of money and resources in having to defend themselves against a claim of wrongful termination, discrimination, family and medical leave or employment related legal claims. It further provides the employer with the certainty and security that a former employee will not pursue a claim against them at some future date.

Employers often require confidentiality as part of a settlement of claims with a former employee. These provisions will typically require that the employee keep all terms and conditions of the settlement confidential, with the only exceptions of allowing he or she to discuss the terms with their immediate family members, accountants, financial advisors and attorneys. Recent changes of New Jersey law under S121 have limited an employer’s ability to enforce confidentiality provisions in settlements for disputes discrimination, sexual harassment and retaliation under the New Jersey Law Against Discrimination.

Employers will often require that employees refrain from disparaging the employer in future communications. Employers who insist on this provision being added to the settlement agreement often argue that the employee should not be free to disparage the employer if the employer is providing the employee severance or other consideration relating to the termination and former employment. In exchange for this provision, most employers are willing to provide a neutral reference for any prospective employer of the employee.

Other common provisions that employers may want to include in a severance agreement include a provision that they did not admit to any liability, they have no obligation in the future to re-hire the employee, post-termination restrictions on the employee’s ability to work (i.e. non-competition, non-solicitation, anti-pirating provisions, etc.) and the employee cannot collect any money in any EEOC or state agency investigation and others to their business needs and policies.

It is always advisable for an employee to have his or her severance agreement reviewed by a competent employment attorney who can explain the legalese of the document in layman terms and in some instances potentially negotiate for better terms should the employee choose to do so. Severance agreements can be very complicated and can greatly impact the future of the employee and his or her ability to recover from the termination of employment and move on to new employment.