Separation Agreements, sometimes called Severance Agreements, are valuable documents that help ensure a smooth transition when terminating an employee. For the employer, a good Separation Agreement offers certainty that the employee will not bring any lawsuits, frivolous or otherwise, against the company. For the employee, these agreements provide a severance package and additional payment to assist him/her post-termination.
While the terms can be tailored to both parties’ needs, overall, it should protect your company from potential litigation and ensure the employee receives compensation, continued insurance coverage, and/or other benefits. Usually, the employer will offer some kind of payment in exchange for an employee giving up certain rights and releasing potential claims.
Here is a list of the Top 10 things to consider including in your Separation Agreements:
1. Check with your attorney and HR Director.
There are several statutory notice requirements that employers need to meet for the employee to effectively waive and release his/her potential claims. Your legal counsel and HR Director will be up to date on what should be in the notice to your employee and the proper terms to include. For example, at the time of separation, employers are required by Colorado law to provide the employee with a notice of information about the availability of unemployment compensation benefits. Employees also must be given a required statutory notice period to review the agreement, and the opportunity to rescind it.
2. Title the Agreement Clearly.
Your Separation Agreement should be called something like “Agreement and General Release.” The title should indicate that the document is both (1) an agreement to give your employee some form of financial compensation in exchange for (2) the employee releasing or giving up certain rights or abilities to pursue claims. Ideally, it should be a stand-alone document, not merged into other paperwork. This will help with Tip #3.
3. Highlight in the Release that your employee is giving up certain rights.
You are paying your employee (in either a lump sum or a continuation of their salary) to give up legal claims they might have against you. Ensure that the agreement clearly states that by signing the Release and accepting payment, your employee is voluntarily giving up his/her rights, which should be clearly listed.
4. Include the Termination Date.
The agreement should specify the date on which your employee’s relationship with the company is officially terminated. If you want to include it, you can have your employee agree not to reapply for employment at a later date in the future.
5. Include a Non-Admission Clause.
Make sure the Agreement is clear that you and/or your company are not admitting liability, violations of any law or regulation, or commission of any other tortious or civil wrong.
6. List the relevant laws you want specifically included in the Release.
General or broad language can be hard to enforce in a separation agreement, so it’s imperative that you be detailed and specific. The Agreement language should say that your employee is aware they have employment rights under a long list of federal and state acts and other laws, which you should explicitly list out for them. These may include the ADA, Title VII of the Civil Rights Act, ADE, FMLA, or state and local anti-discrimination laws.
7. Consider including a Trade Secrets Clause.
Did you spend time and money developing trade secrets or confidential, proprietary information that your employee had access to? Did your employee have access to trade secrets or confidential information of a related entity, like your subsidiaries, clients, customers, affiliates, etc.? You might want to include language that forbids your employee from disclosing that information without your written permission. This clause should include a list that specifies what kind of information is confidential and cannot be shared or used by the employee.
8. Calculate and ensure that your employee has been properly paid.
The Agreement should include language that confirms your employee has already been given all payments and benefits they are entitled to receive. This could include wages, sick pay, severance pay, bonuses, or any other type of compensation they might be owed. All wages owed to the employee must be paid at the time of termination. You cannot hold those back and lump them into a severance payment.
9. Include a Termination of Prior Agreements Clause.
This will ensure that this Agreement supersedes any other written or oral agreements that may have been in place with the employee. However, there are some agreements that you may want to consider referencing. These may include confidentiality, works-for-hire, and non-solicitation agreements.
10. Make it clear that any changes to the Agreement need to be in writing and signed.
Not allowing oral modifications to the Agreement will protect both you and your employee. Modifications, if any, should be in writing and signed by both parties.
Conclusion
The Release is only valid if it is knowingly and voluntarily entered into, so it should be as clear and detailed as possible. Our firm handles Separation Agreements, mainly on the employer/company side and for executives and upper management. If you have any questions or think your current standard form could use a review and update, feel free to give us a call.
Mallon Lonnquist Morris & Watrous, LLC, is a business, employment, real estate, and litigation law firm based in Denver, Colorado. The attorneys at MLMW regularly represent businesses and individuals in drafting and reviewing employment agreements.
