Severance Agreements –What Do They Usually Cover?

A severance agreement comes about when there’s a separation of employment and the employer wants to give to the employee benefits to which they otherwise would not be entitled in exchange for the employee releasing any and all claims that they might have against the employer. The common terms in the severance agreement would include things like the amount of the payment; the timing of the payments, if it’s going to be in one lump sum or if it’s going to be over months of time.

Then, there’s some general categories, what’s almost always within any severance agreement. For example, a non-disparagement clause. The company and the employee don’t want to say bad things about each other. There’s often a confidentiality clause by which the employee agrees to keep the terms of the agreement confidential, only sharing with their attorney and their spouse and their financial advisor. Sometimes, if the employee was at a certain level, there’s a cooperation clause which says that the ex-employee will come back and help the company if there’s a dispute with that employee or a contract or something.

A severance agreement normally doesn’t alter some existing requirements. For example, an employee is always required to keep trade secrets secret. If there’s a non-compete provision and a non-solicitation provision, then it probably won’t change that. Sometimes, a severance agreement tries to add in a non-compete agreement or a non-solicitation agreement, and that has to be looked at carefully to see if it’s legal, if it’s appropriate. There’s usually a mediation clause if there’s an argument over the contract, if there’s a breach of some kind. Usually, there’s a binding arbitration clause. One of the claims that gets released if it’s an age claim. If the employee is 40 years or older, then that, by law, employee has21 days to consider the offer of severance. Even if they sign it, they have 7 days to revoke it.

Finally, there’s usually a “Which law will govern?” Now, you might assume, because you’re in Colorado, that it would be Colorado law. That’s not always the case. If the company’s headquarter is in another state, let’s say New York, they may say, “Oh, no. We want New York law to apply.” It’s a really good idea, and they usually even tell the employee this, go ahead and consult with an attorney. We meet with lots of folks here in Miller & Steiert who have severance agreements. We work them through the terms and how to help them understand what’s going on, so don’t hesitate to give us a call.