Separation and Severance

Sometimes it’s so hard to say goodbye. Separation/severance agreements can be used for goodwill or for legal protection in high risk employee departures.

Severance agreements are most often associated with larger Fortune 500 type companies. We have all heard in the news folks like Goldman Sachs, Hewlett-Packard and the like paying massive “severance” amounts to their departing executives. But sometimes even rank and file employees might be offered a severance “package” upon termination of their employment, most often either as part of a layoff or perhaps under a company defined benefit plan.

For small/medium business (SMB) a separation agreement is more likely used in “red-flag” employment terminations. By red-flag we mean either that the employer suspects the employee is sue-happy or the employer is terminating under difficult or risky circumstances that may give rise to liability if sued by the former employee.

How a Separation/Severance Agreement Works

The typical separation agreement boils down to this: employer pays extra money to the former employee. In return, employee releases all legal claims against the employer and promises not to sue the employer in court. This is all done in writing – a contract.

For employees over 40 years of age or older, special language must be included in the separation/severance agreement in order to make release of age related discrimination claims valid. Further such employees have 21 days to consider the agreement/release and then have 7 days after they sign the agreement to revoke it.

Using Separation/Severance Agreements

Whether to use a separation agreement is more of an art than a science. There are pros and cons. Use of such agreements may not be appropriate given the particular circumstances. At Vision Law we help employers evaluate whether to use a separation/severance agreement taking into consideration your company’s facts unique to the employee in question.