Separation agreements – Employment and HR

United States: Separation agreements

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Separation agreements help companies and employees to avoid conflicts and to achieve an amicable separation of their affairs at the end of the employment relationship. Some of the most common and important provisions are discussed below.

Severance pay
Severance pay is one of the main provisions of any separation agreement. Without it, the employee has little incentive to sign the separation agreement. The amount of the severance pay depends on many factors such as industry practices, the remuneration of the executive at the time of separation, the length of time the executive worked for the company, whether the executive or the company has potential claims, and other provisions of the separation agreement.

Severance pay can be paid as a lump sum or over time. There are pros and cons to both. The lump sum payment ends the relationship between the company and the manager sooner and reduces the risk of future litigation. Paying over time can reduce the financial burden on the business and can help ensure compliance with provisions such as confidentiality, non-denigration, and return of goods.

Another important provision is the release of complaints. This is especially important if the leader has potential claims against the company, such as discrimination, harassment, or whistleblowing. However, even if there are no known claims, it is prudent to have a release, as claims that were unknown at the time of separation sometimes arise later.

A common point of contention is whether the company will release the employee. Certainly, if claims have been threatened against the C-level executive, a release is appropriate and the executive must insist on one. On the other hand, even in the absence of known claims, many leaders will insist that the theory that “what is good for the goose is good for the gander” be published. Some companies are reluctant to release an executive from unknown claims for fear of later learning that the executive has committed fraud or other misconduct without the company’s knowledge. As with other issues discussed in this article, the scope of a release is often the subject of intense negotiation and depends on the relative bargaining power of the parties.

Confidentiality and non-denigration
For the company, confidentiality and non-denigration are often important issues. The company might fear that if it learned that it was paying a significant severance package to an executive, other employees might negotiate a higher severance package. Companies are also frequently concerned about damage to their reputation by the departure of a high-level executive, especially when the separation is contentious.

Here again, one often wonders whether the confidentiality and non-denigration provisions should apply to both the manager and the company. The executive has just as much incentive to protect their reputation, and perhaps more since the executive will usually be looking for a new job. Companies can legitimately claim that they cannot be bound by a non-bashing provision because, as an organization, it is made up of many people who may have many different opinions about the outgoing leader and the organization. has little ability to control them. This problem can be solved by limiting the restriction of non-disparagement to certain specific positions or individuals within the organization, such as officers, directors, human resources employees, etc.

Enforcing these provisions can be difficult. The party executing the agreement bears the burden of proving a violation, and disclosure often occurs in a way that makes it difficult, if not impossible, to prove a violation. If so, then he will have to prove damages to get a pecuniary judgment and that too can be difficult.

Provisions omitted from previous agreements
A separation agreement provides an opportunity to “clean up” the relationship between the parties. While companies must strive to include all necessary and desired provisions in labor agreements, intellectual property agreements, non-compete agreements, etc., mistakes do happen. If this is the case, terms omitted in error may be included in a separation agreement.

Other provisions
The discussion in other articles regarding choice of law and place, arbitration and attorney fees also applies to separation agreements.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


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