PARTING COMPANY:Effective Use of Employee Separation Agreements

Presented by

Patricia D Weitzman Esq Robert C Brooks EsqPatricia D. Weitzman, Esq.pweitzman@verrilldana.com

(203) 222-3116

Robert C. Brooks, Esq.rbrooks@verrilldana.com

(207) 253-4456

AgendaAgenda

• What is a separation agreement?What is a separation agreement?• Why and when to consider offering a

separation agreementseparation agreement• Elements of a separation agreement• Special situations• Government agency scrutinyg y y• Practical tips

What is a Separation Agreement?What is a Separation Agreement?• A legal contract between an employer and an employee g p y p y

that sets the terms on which the employment will end and how the parties will conduct themselves in the futurefuture

• Other names:Other names:– severance agreement– termination agreement– succession agreement

Why use a Separation Agreement?Why use a Separation Agreement?

• An agreement gives predictability to bothAn agreement gives predictability to both employer and employee regarding what will happen after the employment endswill happen after the employment ends

A id liti ti• Avoids litigation

• Preserves goodwill

Risk of Offering Separation AgreementRisk of Offering Separation Agreement

• May give employee idea of pursing aMay give employee idea of pursing a claim against the employer

When To Consider A Separation AgreementWhen To Consider A Separation Agreement

• Consider Using When There Is Any Risk Of Litigationg y g– Any involuntary termination (including forced

resignations)– Any separation where payment of wages,

commissions, or benefits remain in dispute– Any layoff or reduction in force– Any layoff or reduction in force– Any voluntary resignation where the relationship with

the employee is strained

When To Consider A Separation Agreement (con’t.)

• Consider using when there is any risk the former g yemployee can harm the company– Any separation of an executive or senior manager– Any separation of an employee with knowledge of the

employer’s confidential information or trade secrets– Any separation of an employee who may try to hurt– Any separation of an employee who may try to hurt

the company’s reputation or business

Elements of a Separation AgreementElements of a Separation Agreement

• Essential provisionsEssential provisions

• Optional provisionsOptional provisions

Essential ProvisionsEssential Provisions

• A contract must have “consideration” toA contract must have consideration to be enforceable

• “Consideration”: something of value to hi h i t l d titl d th twhich a person is not already entitled that

is given in exchange for an agreement to d f i f d i thido, or refrain from doing, something

Essential ProvisionsEssential Provisions

• Typical forms of consideration fromTypical forms of consideration from employer (need only one):

Severance pay– Severance pay– Employer-paid insurance benefits

Outplacement services– Outplacement services

Essential ProvisionsEssential Provisions

• Typical form of consideration fromTypical form of consideration from employee:

A release of legal claims against the– A release of legal claims against the employer

Limitations on ReleasesLimitations on Releases

• Employees cannot waive right to:Employees cannot waive right to:– unemployment benefits

workers’ compensation benefits– workers compensation benefits– claims under the FLSA

health insurance benefits under COBRA– health insurance benefits under COBRA– vested retirement benefits under ERISA plan

l i th t i ft th i t d t– claims that arise after the signature date

Optional ProvisionsOptional Provisions

• Summary of what employee is entitled to:Summary of what employee is entitled to:• per an employment agreement• vacation, PTO, sick – if policy provides• last paycheck – check state laws• pension, 401(k), etc.• COBRA• COBRA• Bonus, if earned• specify last day of employment

• Not dependent on signing the separation agreement

Optional ProvisionsOptional Provisions• Confidentiality regarding the existence and terms of the y g g

agreement• Confidentiality of employer information• Non-competition/Non-solicitation• Non-disparagement

Covenant not to sue• Covenant not to sue• Severance pay not counted for other employee benefits;

e.g., 401kg ,

Optional Provisions (con’t )Optional Provisions (con t.)• Procedure for handling reference requestsg q

– Designated spokesperson for company– Letter of reference

• Return of property• Cooperation after separation

f– transition of duties– litigation

• Reference to other agreements• Reference to other agreements– E.g., employment, NDA, non-competition,

shareholder

Optional Provisions (con’t )Optional Provisions (con t.)• Representations by the employeep y p y

– Nothing else due from employer, e.g., unpaid wages– No undisclosed injuries– No known unlawful or illegal actions by employer– All company property returned

Optional Provisions (con’t )Optional Provisions (con t.)• No contesting claim for unemployment benefitsg p y• Remedies for breach of agreement

– return of some or all of severance pay– injunctive relief in case of breach by employee– attorney fees

• Tax treatment• Method and forum for resolving disputes

court vs arbitrator– court vs. arbitrator– location for any litigation

Special Situations- ADEA claimsSpecial Situations ADEA claims

• Release of claims for age discrimination underRelease of claims for age discrimination under the Federal ADEA requires compliance with EEOC regulations

• ADEA applies to employees age 40 and older• “Older Workers Benefit Protection Act of 1990”

(OWBPA) governs waivers of ADEA claims

Special Situations- ADEA claims (con’t)Special Situations ADEA claims (con t)

• OWBPA requires that waivers of ADEA claimsOWBPA requires that waivers of ADEA claims must be:– knowing and voluntary – written in plain language– must fully inform employee of rights he/she is waiving– must refer to the Age Discrimination in Employment

A t bAct by name– must refer specifically to rights or claims available

under ADEA (age discrimination) , including right tounder ADEA (age discrimination) , including right to file a charge with EEOC or State FEP

Special Situations- ADEA claims (con’t)Special Situations ADEA claims (con t)

• OWBPA requires that waivers of ADEA claimsOWBPA requires that waivers of ADEA claims must :– advise employee to consult with an attorney before

signing– give employee at least 21 days to consider offer – but

employee may sign earlieremployee may sign earlier– give employee 7 days to rescind

Special Situations- ADEA- LayoffsSpecial Situations ADEA Layoffs

• If ADEA waiver is offered as part of a reduction inIf ADEA waiver is offered as part of a reduction in force, either voluntary or involuntary, the agreement must also:– provide demographic data regarding age and

position of other employees in the group(s) affected by the RIFby the RIF

– give employees at least 45 days to review

• Two or more employees affected by RIF trigger application of special rules

More Special SituationsMore Special Situations

• Employees with deferred compensationEmployees with deferred compensation (I.R.C. §409A)

• Delayed separation date• Delayed separation date• Wage claims under the FLSA

– settlements need approval of either DOL or Court

Recent Government ScrutinyRecent Government Scrutiny

• EEOC, SEC, and NLRB taking position thatEEOC, SEC, and NLRB taking position that many common elements of separation agreements are unlawful:• confidentiality• non-disparagement• non-disclosure• covenant not to sue

cooperation• cooperation• forfeiture of future recovery

Practical TipsPractical Tips• Avoid recycling old forms – get legal advicey g g g• Be open to negotiation• Avoid appearance of coercion• Consider including low-cost incentives to sign• Goal is to avoid lawsuits