Hawks Quindel attorneys frequently advise clients about the terms of a severance or separation agreement. When an employer wants to end the employment of an employee, typically in middle or upper management, they may offer that employee a severance or separation package that includes financial considerations that the employer is not otherwise contractually obligated to pay to the employee, but which they are offering in exchange for the employee agreeing to do, or not do, various things that will benefit the employer, and which the employee would not otherwise be obligated to do or not do.
This article identifies the most common components of a severance or separation agreement, and raises the issues about which employees should be concerned as they negotiate the terms of an agreement.
Termination v. Resignation
This is an important choice for an employee because calling the end of employment a “resignation” will usually mean that the employee will be ineligible to receive unemployment insurance after the severance benefits run out if the employee is then unemployed but is actively looking for work. An employee should carefully balance the benefit of characterizing the end of employment as a “resignation” as the employee searches for new employment with the likely ineligibility for unemployment insurance benefits. An employer will usually agree to whichever characterization the employee prefers unless the employee initiated the resignation.
Amount of Severance
Because there is no state or federal statute that governs the amount of severance to be paid, it is a matter of negotiation, unless the employee has an employment agreement that states what is to be paid, or unless the employer’s personnel policies provide a schedule of severance benefits. The general rules of thumb in southeastern Wisconsin are that many employers believe that one week per year of service is reasonable, and attorneys representing employees think that one month per year of service is reasonable. There is a general consensus that a one year cap is appropriate unless there is significant value to the release of all claims, which is discussed below. Sometimes, employers are willing to pay some additional months that are tied to whether or not the employee has obtained new employment.
Agreement to Not Sue the Employer
One universal term of severance or separation agreements is a provision preventing the employee from ever suing the employer for anything related to their employment, with the exception of filing claims for unemployment insurance or worker’s compensation, or for breach of the severance or separation agreement.
Employers usually want employees to keep the terms and existence of the severance or separation agreement confidential and to disclose it only to their immediate family, accountant, and attorney. They also want employees to agree to keep the confidential, proprietary and trade secrets learned by the employee during employment confidential. Attorneys representing employees usually request that the request to keep the terms and existence of the agreement confidential be mutual, and to have exceptions for both requirements for the employees’ receipt of a court order to testify that might otherwise require the employee to disclose such information under oath.
Employers usually want a promise that the employee will not make public comments about the employer that are likely to harm the employer’s reputation. Most severance or separation agreements include a paragraph that sets out a standard of behavior for the employee that will constrain what an employee may say, in any forum or medium, about the employer. Agreeing not to disparage the employer is the most commonly-used standard, but some employers propose a “negative” or “harmful to the employer” standard. Employees should be careful about these provisions because they typically have no time limit. The provision should be made mutual and be subject to the receipt of a court order to testify.
We recommend that an employee who receives a severance or separation agreement, or who is considering leaving their employment and wants to propose to their employer that they negotiate one, consult with one of the Hawks Quindel employment lawyers concerning the specific provisions of his agreement.
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