Terminating an employee is one of the most difficult tasks for any businessowner, be it for reasons relating to the high costs of turnover, uncertainty in filling the position, or a personal friendship with the individual worker. However, when it comes to firing an employee, there are certain safeguards a business should consider in order to avoid major legal catastrophe down the road, including the negotiation of a separation agreement (sometimes known as a “severance package”). When preparing for the difficult termination discussion, be sure to also review the employee’s front-end employment contract to identify any areas of concern ahead of time. Above all, make certain that the termination is not based on any underlying discriminatory or retaliatory circumstances – or the employer may be facing a lawsuit of its own.
What is a Separation Agreement?
As the name suggests, a separation agreement is a legally-binding contract between the employer and the recently-terminated employee. Separation agreements can be highly negotiable and specifically tailored to meet he situation at hand. In other words, these agreements are not one-size-fits-all, and may contain any of the following provisions:
- Waiver of the right to sue
- Non-compete agreement
- Lump sum payment to employee
- Agreement to keep industry information confidential
- Return of all property
- Agreement by employer not to disclose reasons for termination
In the event of employment termination, the employer may encourage the employee to meet with independent legal counsel prior to signing, which could then prompt the addition or deletion of certain terms and conditions in the original agreement. Separation agreements, once properly drafted and fully executed, are legally binding in all 50 states and enforceable in court if either party were to violate the terms. In many instances, this type of agreement protects both former employee and the employer from difficulty and expense post-termination – provided all terms are clearly defined and both parties fully understand the implications of a breach.
Agreeing Not to Litigate
One of the hallmarks of a strong separation agreement is the clause containing the employee’s promise not to initiate legal action against the employer. This particular aspect of the agreement should be as clear-cut and succinct as possible, and should list the various types of litigation that the employee is agreeing to waive. These areas of consideration include claims of:
♣ Discrimination or workplace hostility enforced by the Equal Employment Opportunity Commission (EEOC) and its state-level counterparts;
♣ Failure to accommodate a disability covered by the Americans with Disabilities Act (ADA);
♣ Age discrimination;
♣ Violations of the Equal Pay Act
♣ Wrongful termination
♣ Personal injury or negligence
While negotiating these waivers with a departing employee, it is absolutely vital that the employee waive such future claims “knowingly and voluntarily.” Of course, if an employee is under some sort of cognitive distress, the influence of drugs or alcohol, or is otherwise not competent to sign such waiver, the agreement would be invalid. Further, it is important that this type of waiver be very clearly discussed with the employee prior to affixing signatures to the document – including advising the employee that he or she may seek legal advice prior to signing. Practically speaking, this also means that the waiver language should appear very clearly and unambiguously in the text of the agreement, as opposed to buried in size eight font on the 13th page. In other words, the employee must, in fact, know what he or she is agreeing to – and must do so completely voluntarily.
Other Safeguards to Consider
While the law generally supports the notion of waivers, this concept is not limitless – and certain claims simply cannot be waived. First, courts faced with these types of claims will be loathe to enforce agreements limiting an employee’s right to sue for intentional or reckless injury or harm (as opposed to accidental negligence). Reason being, most jurisdictions do not want to create an environment in which employers can intentionally mistreat employees without facing legal repercussions.
Also, as discussed above, an employee’s waiver must be completely knowing and voluntary, and courts will consider whether this requirement was met by reviewing the facts surrounding the execution of the agreement. For instance, did the employee have adequate time to read through the agreement? Is the employee of an education level such that he or she could sufficiently understand the language? If the employee wished to speak to an attorney, was the opportunity provided? Were there any language or cognitive barriers impacting full understanding? If any of these are at issue, it is possible that the waiver may be nullified if challenged – so take heed to not rush the process.