Employee separations can present significant legal and practical issues for employers. Whether the departure involves an individual termination, restructuring, reduction in force, or negotiated separation, the severance agreement should reflect the circumstances rather than simply rely on an old template.
A well-drafted agreement can define the parties' obligations, address post-employment issues, and reduce uncertainty. But the agreement must also comply with applicable law.
Start with the Compensation
Before preparing the agreement, determine what the employee is already entitled to receive and what additional consideration the company is offering in exchange for the agreement.
Depending on the employee's compensation structure, employers may need to address:
- Final wages
- Commissions
- Bonuses or incentive compensation
- Accrued PTO, where applicable
- Equity or stock benefits
- Expense reimbursements
- Severance compensation
- Benefit continuation
The agreement should clearly distinguish existing compensation obligations from additional severance consideration.
Tailor the Release to the Separation
A release of claims is often a central component of a severance agreement, but releases should not simply be copied from one employee's agreement to another.
The appropriate language can depend on the employee's position, age, location, circumstances of separation, prior complaints, contractual rights, and other factors.
Employers should also ensure that an agreement does not purport to waive rights that cannot lawfully be waived.
Consider ADEA & OWBPA Requirements
Special requirements apply when an employer seeks a waiver of potential age-discrimination claims from an employee age 40 or older.
Depending on the circumstances, federal law may require:
- Specific, clear language understandable to the employee
- Additional consideration beyond existing entitlements
- Written advice to consult an attorney
- Specified consideration and revocation periods (e.g., 21 days for individual terminations, 45 days for group terminations, and a mandatory 7-day revocation window)
- Additional disclosures regarding decisional units, eligibility factors, and job title/age data in group termination or exit incentive programs
These requirements should be considered before the agreement is presented to the employee rather than after it has been signed.
Evaluate Confidentiality & Non-Disparagement Terms
Confidentiality and non-disparagement provisions should also be reviewed carefully. Employers may have legitimate interests in protecting confidential information, trade secrets, customer relationships, and business reputation. At the same time, applicable law may protect certain employee communications and disclosures. Using overly broad or outdated language can create unnecessary enforceability issues.
Address Restrictive Covenants Separately
If an employee is already subject to a noncompetition, nonsolicitation, confidentiality, or other restrictive covenant, determine how the severance agreement interacts with those obligations.
Employers should consider whether existing restrictions should be reaffirmed, modified, released, or otherwise addressed as part of the separation.
Review the Circumstances Before Making the Offer
The agreement itself is only part of the analysis. Before finalizing a separation, employers should consider the circumstances leading to the decision.
Relevant questions may include whether the employee recently:
- Made a discrimination or harassment complaint
- Requested medical or family leave
- Requested a disability or pregnancy-related accommodation
- Raised wage-and-hour concerns
- Reported suspected unlawful conduct
- Engaged in other potentially protected activity
The existence of one of these circumstances does not necessarily make a termination unlawful. It does, however, make careful review of the decision, documentation, timing, and applicable law particularly important.
Group Reductions Require Additional Planning
Reductions in force (RIFs) and other group separations can present issues that do not arise in an individual termination.
Employers may need to evaluate:
- Selection criteria and objective evaluations
- Consistency across departments
- Statistical impact across protected classes
- Decisional documentation
- Severance calculation formulas
- Employee communications and timeline execution
- Mandatory statutory disclosure requirements (OWBPA)
Planning these issues before employees are notified can help identify potential concerns while there is still an opportunity to address them.
Don't Overlook the Practical Terms
A separation agreement should also address the practical details of ending the employment relationship, including:
- Return of company property and equipment
- Revocation of access to electronic systems and internal data
- Protection of confidential information and intellectual property
- Designated contacts for references and response protocols
- Rehire eligibility status
- Post-employment cooperation obligations
- Firm dates for benefit termination and transition
- Specific payment schedules and tax withholdings
- Interplay with existing restrictive covenants
Clear terms can reduce misunderstandings after the employee leaves.
Review Before You Present the Agreement
Employment law changes, and a severance agreement that was appropriate several years ago may not be appropriate today.
At Cadogan Law, we advise employers throughout Florida regarding employee separations, severance agreements, restrictive covenants, workplace investigations, personnel decisions, and employment disputes. We also represent employees, giving our attorneys insight into the issues and arguments that can arise on both sides of a separation.
Before presenting a severance agreement, legal review can help identify potential problems, clarify the company's obligations, and ensure that the agreement reflects the particular circumstances of the separation. Call us today at (954) 371-1607 to schedule a consultation.
