In this video, you get answers to these questions about separation agreements, also known as severance agreements:
- What is a severance agreement?
- What questions should you ask before signing a severance agreement?
- What are you agreeing to when signing a severance agreement?
- What do attorneys look for in a severance agreement?
Often a business will offer an employee separation or severance pay when the employee is laid off or terminated. If the employee is not otherwise entitled to the severance pay (for example, under a union contract), it is prudent for the employer to obtain a release from the employee of any legal claims the employee may have against the employer in exchange for the severance benefits.
What is a severance package?
A severance package is something more commonly associated with highly paid executives at large corporations. Many small businesses opt to use them as well to foster goodwill and avoid the potential of a lawsuit later. A severance package is something put together by an employer that usually includes compensation and continuation of benefits for a period of time. It may range from two weeks of pay plus accrued vacation to six months of pay and a year of health insurance.
What concerns do employees have?
An employee’s main concerns are (1) getting paid whatever funds they are promised for signing the separation agreement and (2) getting a release of any claims the employer may have against the employee.
What concerns do employers have?
It is important that the agreement contain the right language to effectively relieve the employer from any liability to the employee for matters that arose during the time the employee worked for the company, including any possible claims that arose out of termination of the employee’s employment, including, discrimination, wage and hour, overtime, retaliation, breach of contract, infliction of emotional distress and ERISA claims.
Why do employers provide severance?
The primary benefit of offering a severance package is usually that the former employee must sign a separation agreement in order to receive the severance pay under which he or she waives any claims they may have against the employer. This could protect the employer from a potential lawsuit in a very direct way. Indirectly it also avoids litigation because the employee is likely to leave with less ill will towards the employer.
How do employers provide a severance package?
If you decide to lay off or terminate an employee and are interested in providing some sort of severance package, it is important to contact an attorney to draft the agreement for you. There are specific guidelines that must be followed in order for an employee to validly waive potential claims against an employer. Attorney Aaron Hall has extensive experience working with contracts like severance agreements. He works with clients to prepare a fair severance package that aligns with each client’s unique goals and concerns. Planning ahead can save you the costs of future litigation.
What should be included in a separation agreement?
Here is a list of subjects and sections that should be included in an employment separation agreement in Minnesota:
- A description of the severance pay and whether it is payable in installments or over time.
- A release of the employer under any and all employment laws plus a waiver of the right to bring suit or file claims against the employer. Note, that an employer cannot prohibit an employee from filing a claim with the Equal Employment Opportunity Commission (EEOC) but can prohibit an employee from receiving any financial gain in connection with that claim. This will, in most cases, be an effective disincentive to the employee filing a charge.
- A confirmation of any non-compete obligations.
- A requirement that the employee returns, or has returned, all of the employer’s property, together with a confirmation that the employee has destroyed any copies in his or her possession.
- A provision where the employee agrees not to disparage or say negative things about the employer.
- A prohibition against the employee applying for future employment with the employer. This provision is necessary to avoid retaliation claims if the employee applies for employment in the future and is not hired.
- Include appropriate rescission rights. Specific language is required under the federal Age Discrimination in Employment Act (ADEA) and the Minnesota Human Rights Act (MHRA).
- If the employee is over 40, additional ADEA language is required.
- If the employee is being let go as part of a layoff (involving more than just the one employee), and the employee is over 40, language is needed to identify the ages of those persons being let go.
- Injunctive relief and attorneys’ fees for breach.
Can employers recover severance payments after ex-employee’s breach?
This is a big topic. To learn more, visit this article: Employers Can Recover Severance Payments After Ex-Employee’s Breach
Is there a transcript of this video?
Yes. Here is a transcript of attorney Aaron Hall discussing employee separation agreements in Minnesota:
I’m Aaron Hall, a business attorney in Minneapolis, Minnesota. I represent employers in drafting severance agreements and employees in considering whether to sign a severance agreement. Sometimes a severance agreement is called a separation agreement, essentially the same thing, just a slightly different title. The idea is that an employee is no longer working in the company and the company is interested in paying the employee something in exchange for releasing any claims the employee might have against the company. Sometimes it’s a mutual release where the company is releasing the employee and vice versa. Sometimes it is just the employee releasing the company. So that’s an important item to notice if you’re looking at a severance agreement.
When I meet with employees who are thinking about signing a severance agreement, I ask them a few questions. First off, were they a witness to any illegal acts in the company? Were they a whistleblower? Because we want to figure out here was there some reason they shouldn’t have been able to be discharged? Maybe this was some sort of retribution or retaliation for blowing the whistle on illegal activities within the business. So that’s one thing we want to explore.
Second, is there any sort of unlawful discrimination occurring here? Maybe it’s discrimination on the basis of age. A person is getting senior in years and so they’re being terminated in order to make room for younger workers. Maybe it’s based on some other protected class.
Next, I want to know why were you terminated? What was the reason behind it? Now, employers in states like Minnesota, where we are at will, can terminate somebody for any reason at all as long as it’s not an unlawful reason. And so unlawful reasons would be illegal discrimination, terminating somebody as retaliation for them blowing the whistle on your illegal acts, and then there are some other categories as well, reasons you can’t terminate somebody. But you can terminate somebody because they’re not doing their job, they use profanity, they showed up late. There are all sorts of reason you can terminate somebody, including no reason at all.
Now, that can’t be a guise for some unlawful reason but this gives you an idea on the types of things we’re looking at. Because by signing a severance agreement, you are agreeing to waive any legal recourse you might have against that company. We want to make sure that your wages are paid out, including any commissions or bonuses that you might be due. We want to make sure that any other lingering issues between the company are resolved. And to make sure that if you are owed anything for legal claims, that gets settled.
These are the reasons that we’ll look at in a severance agreement, or the economic factors that we’ll look at. And then, when I analyze a severance agreement, I simply make sure that the person signing it understands each of the provisions, and as somebody looking out for their best interest so that you, as an employee, know, “What am I signing away? And what am I getting in exchange for it?”
So if you’re looking at signing a severance agreement or a separation agreement, again, same thing, feel free to see below for additional resources and the link on my website explaining a little bit more information on severance and separation agreements in Minnesota. I’m Aaron Hall, an attorney in Minneapolis, Minnesota.