It used to be that employees who decided
to leave a company were given a farewell
lunch and a hearty handshake on their way out the door. These days are now gone,
as the termination decision merely ushers
in a new phase in an ongoing relationship.
A good separation agreement sets out
both parties’ obligations in a clear, easy to
understand manner and is more likely to be
upheld in courts, says David E. Gevertz,
shareholder with Baker, Donelson, Bear-man, Caldwell & Berkowitz, PC in Atlanta.
Smart Business spoke with Gevertz on
what comprises a good separation agreement and why separation agreements are
essential in today’s business environment.
Why have separation agreements garnered
so much attention of late?
As the cost and consequences of employment litigation have increased over time,
employers have increasingly conditioned
severance payments on the execution of
agreements that release claims for harassment, discrimination, personal leave and
the like. Plaintiffs’ attorneys, in turn, have
increasingly raised arguments that such
releases — even when signed and paid for
— are unconscionable or otherwise defective, such that their clients can keep the
monies provided and still sue their former
employers. At the same time, governmental
agencies, such as the Equal Employment
Opportunity Commission, have aggressively argued that employers cannot use releases to prevent departing employees from
bringing complaints to their attention for
investigation.
In the absence of clear guidance from the
Supreme Court on these issues, the lower
courts are split on a number of these issues,
creating a confusing and potentially costly
patchwork of rulings concerning what
claims employees can be asked to waive
and under what circumstances.
Why are good separation agreements important for a company to have?
In addition to most employers’ obligations
to continue health insurance via COBRA
and/or pay unemployment insurance or accrued bonuses to departing employees,
businesses must also consider the likelihood that a departing employee may go to
work for a competitor or even reapply for
employment some time in the future. In this
environment, good separation agreements
are essential to setting expectations for the
relationship going forward — much the
way an employee handbook does at the
beginning of the relationship. Separation
agreements provide the ideal forum for the
parties to negotiate where the employee
may or may not work next, how the
employer will handle reference inquiries,
and whether and when an employee may
reapply to return to work at the company.
What are some of the dos and don’ts that go
into a good separation agreement?
First and foremost, a good separation
agreement sets out both parties’ obligations
in a clear, easy to understand manner. The
use of descriptive headings before each
paragraph and initial lines at the bottom of
each page are important. Where a release of
age discrimination claims is being sought,
federal law requires that employees be
given at least 21 — and sometimes 45 —
days to consider the agreement as well as seven days to revoke their waiver. Further,
certain claims, including those for unpaid
wages and workers’ compensation claims,
are only valid if they’re presented to and
signed off by a court or appropriate administrative agency. Agreements that implicitly
or explicitly impede an employee from filing a charge with certain state or federal
agencies are not only invalid, they may
actually provoke a lawsuit by the government. Also, while it’s often desirable to
impose confidentiality obligations on
employees who receive money or other
benefits in order to prevent an air of expectation about such payments, it’s critical to
avoid imposing unduly ‘punitive’ sanctions
on employees who violate those obligations, lest the entire confidentiality obligation be overturned by a court.
Do courts generally side with those terminated from employment or the companies that
terminate them?
While the past few years have definitely
seen an uptick in decisions overturning
overly broad and/or vague restrictions,
courts continue to uphold separation agreements that clearly set out employees’ obligations and steer clear of the increasingly
complex minefield of claims that cannot be
released and post-employment activity that
cannot be restrained. That said, parts of the
country have long been perceived as being
more ‘employer-friendly’ than others.
Georgia courts, for example, are widely
perceived to be straightforward in their
analysis of releases while simultaneously
zealous in their scrutiny of noncompete and
nonsolicitation provisions to ensure that
they’re fair to departing employees.
Consequently, it’s always a good idea to
clarify which state’s law governs the agreement as well as to include a severability
clause to prevent a court from striking large
parts or all of the agreement in the event
one provision is found to be noncompliant.
DAVID E. GEVERTZ is a shareholder with Baker, Donelson,
Bearman, Caldwell & Berkowitz, PC in Atlanta. Reach him at (678)
406-8716 or [email protected].