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Termination of Employment - Severance Agreement
05-15-2008

When an individual is terminated from employment, any Severance Agreement and Release offered by the employer in exchange for a severance compensation package, must be carefully reviewed by the employee’s legal counsel. Once the Severance Agreement is signed by the employee, and legal rights are released, the individual is unable to seek additional benefits. Therefore, review by an attorney prior to signing is critical to negotiating the best possible terms for the employee.

The “Consideration” provisions of the Severance Agreement should be detailed and inclusive. All items agreed to must be included. Common provisions address matters such as: settlement payment, taxation, medical insurances, retirement/pension rights, continuing commissions/bonuses, stock options, life and disability insurances, and payment for unused sick and vacation time.

Many employers are willing to continue medical and dental insurances during the severance payment period. The employee should understand the term and costs of continuation, and must be provided information about continued insurance availability pursuant to the Consolidated Omnibus Budget Reconciliation Act (COBRA).

Often times, terminated employees can obtain a stipend for out-placement services. This is important in helping the employee develop a resume, identify job skills and opportunities, and provide valuable employment coaching.

It is not unusual for the employer to include prohibitions against re-employment. In these cases, such prohibition should be limited so it does not include an undefined chain of subsidiaries, consultants, vendors and affiliates.

Similarly, some employers attempt to include non-compete provisions in the Severance Agreement. These provisions can be devastating and restrict the employee’s realistic chances of future employment. If the employee’s skills and experience come from his position at the employer’s business, it only makes sense that his/her best employment opportunities remain in the same profession or industry!

Confidentiality is a key ingredient to both employer and employee. However, it is important that the employee can discuss the Severance Agreement with his attorney, accountant, and immediate family. Punitive provisions requiring repayment, legal fees and costs are enforceable by the employer. It is also common for there to be a non-disparagement clause in the Agreement.

The quid pro quo for the severance payment and benefits, require the terminated employee to waive all his/her state and federal statutory rights/claims, common law actions, and any claims whatsoever, including actions for discrimination. It is essential that the employee not release his/her rights to enforce the Severance Agreement, workers compensation claims, COBRA rights, or any rights guaranteed by the employer under other agreements pertaining to matters such as: retirement, pension and insurance.

The terminated employee must be given a period of 21 days to review the Severance Agreement under the ADEA (Age Discrimination in Employment Act). However, the employee may sign the Agreement prior to the expiration of the 21 days. There is also a seven day mandatory revocation period under ADEA, as amended. Payment to the terminated employee cannot be made until the individual executes the Separation Agreement and seven days have elapsed.

For more information, please contact Attorney David A. Baram.

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