Learn About Employment Separation Agreements
An employment separation agreement is a contract between an employer and employee which serves to end the employment relationship, typically upon the employee’s resignation or termination. These agreements may also be referred to as severance, exit or separation agreements. Generally speaking, it serves three purposes: first, these agreements commonly provide a severance package and/or benefits in exchange for a release of all claims that the employee may have against the employer; second, the agreement typically establishes confidentiality obligations requiring the employee to maintain the confidentiality of the employer’s sensitive and confidential information; and third, commonly these types of contracts contain a non-disparagement obligation requires an employee not to say anything disparaging to anyone about the employer, its products or services . It is important to note that an employment separation agreement may still be appropriate even if there is no severance package, as may be the case with a low level employee who requests to separate his or her employment in order to take another position.
Separation agreements are fairly commonplace in the employment setting. An attorney well versed in this area, such as those at our firm, can help you draft a proper separation agreement for the mutual benefit of employer and employee.
Components of a Separation Agreement
Employers and employees should take note of the key elements of an employment separation agreement. In addition to severance pay, sometimes referred to as an "exit payment,’ "pay in lieu of notice" or "terminal pay," the following are some common elements found in separation agreements.
A clear description of the amount of severance pay. A general release of all claims against the employer. Acknowledgement of the employee’s ongoing contractual obligations. Where applicable, a regional/national non-competition clause/territory license. A confidentiality provision protecting the confidentiality of the agreement. Where applicable, a gradual return to work. The payment schedule (single lump sum or over a period of months). An acknowledgement that the employer has made the appropriate deductions from the payments made. A statement that the agreement may not be assigned to an insurer or third party. Where applicable, clauses dealing with stock options or pensions. Where applicable, if a restrictive covenant applies, a provision dealing with how the restrictive covenant is anticipated to be calculated. Any other condition of the agreement, such as a further mutual release of the respective parties. A settlement of this type is frequently provided on a "without prejudice" basis so that agreement concerning all aspects of the employment separation is documented without prejudice to any position of either party. Employers should always seek the advice of their employment lawyers when drafting and executing settlements (i.e. a separation agreement). It is very important that the language be unambiguous and clearly drafted so as to prevent subsequent discontent and argument by either party. The separation agreement should be checked to ensure that appropriate care has been taken with investment and withholding taxes. Employment agreements based on principles of good faith and fair treatment should be carefully and judiciously drafted to maximize their full benefit for both the employer and the employee.
Why Hire A Separation Agreement Lawyer
One primary advantage of hiring a lawyer to draft, review and negotiate your employment separation agreement is legal expertise. Review of nuanced statutory language is necessary in order to design favorable outcomes. Lawyers, in the course of their work, become experts in the law on employment terminations. When faced with drafting a separation agreement that can substantially impact your rights and future, hiring an expert saves you the time learning the law yourself.
A second benefit of hiring a lawyer to help with a separation agreement is negotiating experience. Lawyers know how to use language and status to their advantage. So, when negotiating a non-compete, an executive can count on the leverage of his or her position or placement on a board of directors, carefully selecting or crafting the right language to carve out a desired exception to the non-compete.
Separation Agreement Pitfalls
Employees and employers often make mistakes during the drafting and/or negotiation of separation agreements that could easily be avoided with the help of an experienced employment attorney. For employees, termination of employment is a stressful and emotional time. Decisions are made quickly, and with patchy information, which is perfect for exploitation by employers. In the midst of the stress of a sudden job loss, the reality in the recent job market is that job seekers often jump at the first job offer presented to them.
What follows is an analysis of some of the most common pitfalls that employers and employees face when negotiating and drafting separation agreements, and how each can be avoided with the assistance of an experienced employment attorney.
When it comes to separation agreements, nothing necessitates an employer’s decision to change their health care provider, if they can maintain the same coverage at a similar cost. However, some employers will use this opportunity to change coverage, eliminate certain benefits, or raise employee costs for such benefits. More frequently than not, the employee hurriedly signs a separation agreement without having had a consultation with an employment attorney, and does not realize that the decision could have been avoided entirely or mitigated by the assistance of their attorney.
Section 4980B of the Internal Revenue Code, better known as Cobra, mandates that group health plans that cover twenty or more full time employees must have a program that allows employees to continue healthcare coverage at group rates in the event of a "qualifying event." Nevertheless, numerous occupations and events escape the qualifying event definition sufficiently to allow employers the ability to protect their best interests when drafting separation agreements . For example, many employers will use the signing of a separation agreement as an opportunity to eliminate further payments of sick leave and/or vacation pay. Section 4980B, in conjunction with a competing federal law called HIPPA, invites creative accommodations like extending insurance coverage under an employer provided health plan up to two (2) years.
Many companies require employees to sign separation agreements upon separation of employment that release the employer from all further claims. Unfortunately, employees often do not appreciate that significant state and federal laws may provide additional benefits and protections to which the employer might be amenable in exchange for a general release. The Family and Medical Leave Act, the Older Workers Benefit Protection Act, the Employee Retirement Income Security Act, Title VII, and the Americans with Disabilities Act are just a few examples of endless examples of employee entitlements that are fully negotiable and waived on signing a separation agreement. Without having had adequate guidance by an employment lawyer, one that understands the value of these rights, employees may leave a large amount of money on the table when signing a release too soon.
Harassment and discrimination in the workplace are salient issues threatening the modern workplace. While such issues may prompt the unfortunate necessity for an end of employment and a separation agreement, employees must remember that their mouths are still "outrunning their brains" when they sign their employment rights away in exchange for limited compensation. Employees should seek an attorney to help distinguish between solid and empty threats, and negotiate settlement of the allegations at the time of separation. A company that has violated the law will be likely to come to the table and compensate the employee than endure the inevitable employer liability and bad PR.
Choosing The Right Lawyer
When it comes to choosing a lawyer for an employment separation agreement, there are several factors that should be taken into consideration. One of the main ones being the level of experience that the attorney has. You want to ensure that the lawyer you select has ample knowledge and expertise in handling cases similar to yours. This way, they will be familiar with the ins and outs of different agreements and can better advise you throughout the entire process.
Another important aspect to consider is the reputation of the attorney. It can be very beneficial to find one who comes recommended to you by friends or family, as this will give you some insight into what kind of work they do and how much experience they have. If you are unable to find someone through a personal recommendation, you can always gather information through the state bar association’s website or a professional legal association. There, you will be able to find out about the lawyer’s credentials, previous clients, and overall reputation.
Lastly, communication is key when it comes to working with a lawyer. You want someone who is going to be available when you need them and able to clearly explain any questions you may have. Be sure to ask about their availability when you first meet them, and make sure that you feel comfortable with their communication style.
There are a number of different factors that go into selecting an attorney for your employment separation agreement. By weighing out all of these different aspects, you will be able to find the one who is right for you and your unique situation.
Employment Separation Agreement Lawyer FAQs
What does a typical employment separation agreement lawyer cost?
The rates and retainer amounts charged by an employment lawyer vary from one lawyer to the next. An average hourly retail range for employment lawyers in Ontario is $350 to $750 per hour, but will go higher for senior partners and lower for junior associates. Most are in the $450-$500 per hour range, but some Toronto firms are charging up to $1,200 per hour. Most initial meetings with employment lawyers are no charge, but be careful – a lawyer who spends an hour of your time but doesn’t bill it may be racking up more than what your case is worth in the process.
How long does it take to complete an employment separation agreement process?
Most employment negotiations take about a month to complete from start to finish . A small fraction of employment separation contract negotiations take as little as a few hours, and many take more than three months.
How much will I receive in an employment separation agreement for my termination pay?
The average payout for an employment separation agreement is 4-8 months’ pay. In certain clear cases of employer violation (e.g. wrongful termination; a constructive dismissal lawsuit) the payout can be as high as a year’s salary or even more.
What is the likelihood of an employment separation agreement being overturned or violated?
Fortunately, employment contracts are in general quite well structured, and wrongful termination law is also fairly well structured. The chances of an overturn when both sides have strong lawyers is low, and if both sides are acting honestly the chances of a breach are almost zero.