Following a Termination or a Reduction in Force, an Employer may Offer a Severance to Assist the Employee in Transitioning to New Employment.
However, severance agreements often contain broad language requiring an employee to release its employer from any claims pertaining to the employee’s employment in exchange for receiving the severance. These agreements typically include releases for claims under Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family Medical and Leave Action, as well as many other federal and state laws which prohibit certain conduct in the workplace. In exchange for a release of claims, an employer may pay a discharged employee a lump-sum severance or a severance over a period of weeks or months. Some employers may also offer continued health insurance to employees as part of a severance package.
However, there are certain claims that cannot be released in a severance agreement. As an example,
- Unemployment compensation claims
- Workers’ compensation claims
- Claims arising after the parties sign the agreement
- Claims for vested benefits under the Employee Retirement Income Security Act
- The right to file charges or complaints with and/or participate in investigations conducted by government agencies such as the Equal Employment Opportunity Commission, the Ohio Civil Rights Commission or National Labor Relations Board generally cannot be released in a severance agreement
These agreements also usually have certain timeframes that must be adhered to. As an example, for an employer to receive a valid release for claims of age discrimination, an employee must be given 21 days to review the severance agreement. Likewise, after the employee signs the agreement, he or she must be given 7 days to change their mind.
Many severance agreements often include a provision for non-disparagement which provides an employer with confidence that the employee will not make any damaging statements about the employer after the agreement is signed. Employers also often express concern that an employee will tell co-workers that the employer paid a severance. Employers might protect themselves by including language in a severance agreement which requires that the employee maintain strict confidentiality about the terms of the agreement. These agreements may also include penalties for liquidated damages should the employee breach either of these provisions.
An employer may also seek to protect its business by having an employee sign a noncompete agreement. Noncompete agreements restrict an employee from competing with a former employer upon termination of employment, often regardless of the reason for the termination. Although an employee may try to challenge the validity of the noncompete, courts will enforce the agreement provided the restraint is no greater than necessary to protect the employer’s business and it does not impose an undue hardship on the employee. Generally, noncompete agreements need to be reasonable as to the duration and geographic location to be enforceable. Although these agreements are generally signed at the beginning of the employment relationship, that is not always the case.
If you have questions about a severance agreement, noncompete agreement or other type of employment contract, contact Dworken & Bernstein.
