Frequently Asked Questions About Severance Agreements

Q. What is a Severance Agreement?

A Severance Agree is a contract, a legally binding agreement between two parties (the employer and the terminated or resigning employee). Each party gets something from the contract. Usually an Employer offers the Employee some amount of money (whether measured in terms of salary or benefits) in return for the employee agreeing not to bring discrimination or other possible claims against the employer. Other issues may be covered in the severance agreement as well, such as a confidentiality or non-compete agreement, a non-disparagement clause, or the type of reference the employer will give to any inquiries by potential future employers.

Q. Does an Employer have to provide an Employee with a Severance Agreement upon Termination?

Not in most cases. Unless (1) the employee has a contract providing that a severance agreement will be provided or (2) the company has published its intention to provide a severance agreement to a terminated employee (in the Employee Handbook, for example), the employer does not have to provide a severance agreement to any employee.

Q. Why would an Employer offer a Severance Agreement to an employee if not required to do so?

An employer may choose to give a severance agreement to an employee in recognition of years of service to the company or to quiet any possibility that at some time in the future a past employee will harm the company by bringing a law suit or by using confidential company information.

Q. Is there any reason for an employee not to accept a severance agreement?

A Severance Agreement represents an exchange and, before accepting the agreement, the employee should consider carefully –with the advice of a good lawyer – what s/he is exchanging for the benefits promised in the agreement. For example, most severance agreements require that the employee give up the right to sue the company for wage violations or discrimination or anything else connected with their employment. If the employee knows that s/he has no claims against the company, then this particular exchange should not prevent her/him from accepting the agreement. If, by contrast, the employee knows that s/he has a strong legal claim (and has confirmed this by talking with an attorney), there may be a good reason not to accept the exchange the employer is offering and instead bring the legal claim against the employer.

Q. Is there anything that a Severance Agreement must contain?

Like any contract, a severance agreement should contain clear expressions of the Employer’s offer to the employee, including the money or other valuable consideration offered to convince the employee to accept the offer. The employee’s acceptance of the offer (if any) must be “knowing and voluntary” and indicated by the employee’s signature.

However, if the employee is forty years of age or older, the severance agreement must conform to the requirements of the Older Workers Benefit Protection Act.

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