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How to Evaluate Employment Severance and Separation Agreements

At the end of employment, the employer may try and get an employee to sign a separation agreement as a release of claims against the employer. In exchange, the employee may be offered a financial incentive to sign the agreement. The severance and separation agreement may be standard operating procedure for the business or it could involve a sensitive matter that could put the company at risk of a lawsuit.  

For the employer and the employee, it is important that the severance and separation agreement language is clear, so that all parties understand their rights and obligations under the agreement. For an employee, the severance agreement is a way to negotiate a final compensation package. For the employer, the separation agreement is a way to close off any further disputes or possible litigation.

Severance and Separation Agreements in Massachusetts

Some jobs require paying severance under the terms of the employment contract or personnel policies. Other jobs do not require any severance or any additional compensation or payment upon termination. 

Severance packages and separation agreements often go together after an employee is laid-off or loses his or her job. An employee may not be required to sign a separation agreement or agree to release the employer of liability. As an incentive, the employer may offer severance to compensate the employee for releasing future claims against the company. 

Severance Pay

Severance is the compensation or payment provided to an employee after leaving employment. Severance is generally offered when an employee is laid-off due to budget cuts, job elimination, or downsizing. Severance is not as common when an employee is fired or an employee gives notice to leave a job.  

The benefit of severance for employees is that it provides some financial support during a transition period before the individual is able to find a new job. A typical severance package may provide one or two weeks of paid salary for every year worked. Severance packages may also include benefits, including health insurance, for a finite period or until the employee finds another job. 

Separation Agreements

The separation agreement generally provides for what the employee can and cannot do after leaving employment. The most common separation agreement terms involve release of liability. A severance package is generally conditioned upon signing a separation agreement. Even when severance is required by the employment contract, an employer may increase the severance offer as a way to get the employee to agree to the separation agreement, including increased compensation or extended benefits. 

Release of Liability and a Promise Not to Sue

A separation agreement often includes a release of liability to avoid the potential for lawsuits against the employer. Even without any specific information or threat about a lawsuit, the employer may want a waiver of the employee's right to sue as a general protection. Alternatively, the employer may be seeking a separation agreement because of an existing concern, such as a lawsuit for wrongful termination, sexual harassment, or employment discrimination. 

Noncompete and Nondisclosure Agreements

Nondisclosure and noncompete clauses are common in separation agreements, even when there are similar terms in the original employment contract. Getting another signature on an updated NDA or NCC may also update the employer's protection when the prior agreements were out-of-date or contained unenforceable language. 

WARN Notice After Layoffs

The federal Worker Adjustment and Retraining Notification (WARN) Act and related Massachusetts laws provide workers with required notice when an employer eliminates existing jobs or closes facilities. WARN does allow employees to waive any claims under WARN through offering additional severance pay or extended benefits. However, required severance may not offset WARN damages to serve as pay in lieu of waiver of WARN claims. 

Accepting or Negotiating Severance and Separation Agreements

After an employer tells the employee that their position has been eliminated, they are laid off, or they are being offered a generous severance package to leave the company, they may not be thinking of negotiations. Even when the writing is on the wall, getting notice that you are out of a job can be shocking. Employees can benefit from taking time to think about taking the severance package before agreeing to sign it. 

If the employee has some basis for filing a lawsuit, the employer may be more willing to negotiate the terms of the agreement. Even if the employee does not have a very strong claim, the employer may offer some movement to avoid costly litigation and avoid negative publicity.

However, some employers are not willing to negotiate the terms of a severance and separation agreement. If the employee seeks to change the terms of the agreement or seek more severance, the employer may stick with a “take it or leave it” approach. 

Time to Consider Severance for Older Workers 

Employees who are 40 years of age or older may be asked to agree to a severance package that releases claims for age discrimination. Under the Older Workers Benefit Protection Act, the employer must be given 21 days to consider the agreement. Where a group of employees is involved, the workers may have 45 days to review the agreement. Additionally, even if the worker accepts the severance agreement, he or she has 7 days after to revoke the acceptance.

Executive Severance and Separation Agreements

Executives and management-level employees may have more significant severance packages that are negotiated prior to employment. Severance and separation agreements may also have a lot more at stake than a standard employment agreement. Even when severance packages are negotiated prior to accepting the position, executive separation agreements are often re-negotiated at the time the executive leaves the company. 

Are Separation Agreements Legal and Enforceable? 

Just because an employer and employee entered into a separation agreement does not make it enforceable. A common way to challenge a separation agreement after it has been signed is to challenge the legality or enforceability of the contract. Certain terms and provisions may be illegal as against public policy in Massachusetts. When unenforceable terms are part of the separation agreement, a court may be able to strike certain provisions or void the entire agreement. 

Disputes After Severance Agreements Are Signed

After an employer and former employee have negotiated severance and terms of separation, it does not necessarily mean the relationship is over. An employee may come back to try and get out of the separation agreement, ask for more money, or threaten to file a lawsuit in violation of the agreement. Alternatively, if an employee does not abide by the terms of the agreement, the employer may need to file a claim to enforce the agreement or get back the severance compensation. 

Talk to an experienced Massachusetts business attorney if you are facing a lawsuit involving severance and separation agreements. Your attorney can help negotiate a settlement, enforce the terms of the agreement, or get financial damages for your losses. 

Massachusetts Severance and Separation Lawyer 

The Katz Law Group, P.C. has more than 20 years of experience in business and employment law in Massachusetts and across New England. We have represented our clients in severance and separation agreement negotiation and litigation. If you are facing a severance agreement dispute, contact the Katz Law Group today.

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