Employment Law: Key Steps to Navigating Severance Agreements
Employment severance agreements play a crucial role in defining the terms and conditions that apply following termination of employment. Negotiating the right provisions can have a significant impact on the financial and legal aspects of the separation. It is therefore important to ensure that any severance agreement includes the below basic terms, which can be negotiated and adjusted as required in a specific case.
Severance Pay and Benefits:
The amount of severance pay, and any additional benefits to be provided upon termination, as well as the timing for any associated payments, must be included in the agreement. In the absence of an express provision as to the amount of severance pay in the employment agreement or other documents governing the employment relationship, the parties should agree on a fair and reasonable package that reflects the contributions and years of service, as well as any special considerations around the employment relationship and its termination.
Release of Claims:
A provision stating that the parties release each other from any legal claims arising from the employment should be included in the agreement. This is the most important provision from an employer’s perspective, as the employee agrees not to sue or bring legal claims against the employer for issues related to their employment or termination, and it is in exchange for this promise, that employer agrees to pay the severance pay. This provision must be appropriately drafted to ensure that it is enforceable, it effectively operates to release or waive certain claims, and it does not compromise any rights.
Non-Disclosure and Confidentiality:
The agreement must include confidentiality and non-disclosure obligations, particularly covering the protection of sensitive information and trade secrets. From an employee’s perspective, it is important to also negotiate language that allows them to discuss their professional experience and provide references. It’s worth noting that different states, including New York, may have specific rules and restrictions around nondisclosure provisions in employee settlement/severance agreements, so this clause should be considered depending on the governing law of the agreement.
Non-Competition and Non-Solicitation:
Depending on the existence of any relevant clauses in the employment agreement, and any post-termination survival of the relevant obligations, the agreement should cover any required non-competition and non-solicitation restrictions. These clauses should not be overly restrictive, by reference to duration, geographic, scope, and industry in order to ensure enforceability. Overly broad and restrictive non-competition and non-solicitation obligations will not be upheld, generally.
Intellectual Property Rights:
Depending on the relevant clause of the employment agreement, it should be clarified and repeated that any intellectual property created during the employment belongs to the employer. The parties should agree on fair terms to protect the employer’s ownership interest in any intellectual property while respecting each parties’ interests. Depending on the industry, the employee’s position and the employee’s involvement in the creation of intellectual property of substantial value, this clause may need to be drafted carefully and include language assigning the relevant rights to the employer.
Non-Disparagement:
In the context of separation from employment, relationships between the parties might not always be smooth. Therefore, a non-disparagement clause is essential, as it protects against negative statements, bad publicity, and defamatory comments that could really hurt the business and/or reputation of the employer or the employee. Truthful information and neutral statements should be expressly allowed under this clause.
Return of Company Property:
The employee must have the obligation to return all employer property, including devices, documents, and proprietary information. The agreement should detail the method and condition in which the property must be returned.
Governing Law and Jurisdiction:
The governing law and jurisdiction for any disputes must be specified. In today’s employment market, many employees work remotely, often from other jurisdictions; therefore, it is important for the parties to agree what laws would apply and where disputes can be brought, especially given the fact that employment laws differ significantly in different jurisdictions. Governing law and jurisdiction should generally follow the governing law and jurisdiction choice under the employment agreement, unless there is a reason to choose another jurisdiction.
