Over the past several years, we have seen a number of mergers, consolidations, factory closings, and jobs shipped off-shore.  When these situations occur, affected employees are sometimes asked to sign some form of agreement.  These agreements are commonly referred to as a “Separation Agreements”, “Separation and Release Agreements,” or a “Severance Agreements.” The agreements likely include a release of all claims against an employer, in exchange for a sum of money, benefits, or a combination of both.   Regardless of which of name is assigned, these agreements function as an employee’s waiver of his/her right to file suit against the employer.  The specific rights waived vary from agreement to agreement, but, the purpose behind the agreement is to "release" the employer from legal liability for any claims that the departing employee may have against the employer. The scope of the agreement might be broad, where the employee waives the right to sue for any and all claims arising out of his/her employment.  Or, the scope may be narrow, where the employee is waiving the right to sue for certain types of claims.  With these agreements, there are a number of considerations, depending on which side of the table you are on. 

Employers sometimes use separation agreements in the following situations: where the employer believes that the employee might file an employment claim; where the employer believes that the employee has predisposition to be “litigious” or has filed suits in the past; or, where the employer’s risk management policy is to provide additional compensation and/or benefits in return for a waiver of claims.  Employers may wish to include additional protections in separation agreements, beyond a waiver of the employee’s right to sue.  The additional protections are set forth as obligations for each respective party.  These additional protections for the employer are described below:

• Non-Competition Clause – this clause in a separation agreement restricts an employee from practicing his/her trade, for a certain period of time, and within a specific geographic area. In the sales and marketing industry, the term of the restriction typically ranges in duration from one to three years; the scope can restrict selling and direct targeting in an entire industry, working directly for the competition or somewhere in between. 

• Non-Solicitation Clause – this clause in a separation agreement sets forth an enforceable promise of the employee not to contact, recruit, or solicit any of the company’s clients or customers, for the employee’s benefit or for the benefit of the employee’s next employer.

• Non-Disparagement Clause- this clause in a separation agreement sets forth an enforceable promise of the employee not to make negative statements about the company, its customers, or employees.

• What rights is the employee giving up? 
• What is the employee getting in return in exchange for waiving those rights?
• Is the separation agreement negotiable?
• Is the employee able to rescind the agreement within a specified period of time?
• Does the employee understand the agreement?

The separation agreement may include some protections for the employee as well.  One obligation that the employer may have is to provide a neutral reference for the departing employee.  For other employee protections and for more information on how an employee might wish to manage being presented with a separation agreement, stay tuned for part II of this series.