If a business offers a fired or laid off employee more than two-weeks’ pay in severance benefits, it is generally prudent to require the employee to sign an employment separation agreement in exchange for the pay. Such an employment separation agreement should contain a release wherein the employee by accepting the severance payments waives the right to bring suit or file claims against the employer. The specifics of such language should be discussed with employment counsel.
The release should contain specific language to be sure it is enforceable by including certain federal law requirements in the release to effectively waive the right to sue under federal age discrimination employment law.
Employers should also consider, in addition to a release, whether they desire to prohibit the employee from competing. The larger the severance pay, the more reasonable the non-competition provision might be, particularly if the non-compete period is actually tied to the severance payment period. Further, if the employee already has a signed non-competition, the employment separation agreement should reaffirm the obligations of the employee to that non-competition agreement.
The employment separation agreement should further require that the employee return or destroy all confidential and proprietary information and include a definition as to what constitutes such information. The business may want to consider whether to also require the employee to keep confidential the circumstances surrounding the firing and terms of the settlement.
It may also be prudent to prohibit the employee from disparaging the business and, in certain circumstances, it might be prudent to have the agreement contain the prohibition of the employee re-entering the premises even if it is visit his former fellow employees.
The business may also, under certain circumstances, want to have an agreement with the employee that he will not re-apply for a position within the business and acknowledge that he has not right to seek or obtain any further employment with the business.
As to the severance payments, consideration should be made as to whether the payments should be one lump sum or payments over time. If there is a payment amounting to six months of severance, it may be prudent to pay it over the normal pay period of six months thereby decreasing the likelihood of a breach of other provisions such as the non-competition, confidentiality, and non-disparagement provisions during that period.
Lastly, the business should consider whether they want to have a provision requiring the employee, if he breaches the agreement, to pay the business’ reasonable attorney’s fees in enforcing his obligations. If the employee violates the agreement, the actual provable monetary damage to the business may only be the business’ attorney’s fees in responding. Not only would it be helpful for the business to be able to recoup those costs, but the employee will realize that if he breaches the agreement he could be exposed to the liability of paying for the business’
attorney’s fees and may think twice before doing so.
J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].