Severance Agreements: What Employers and Employees Should Consider

When an employment relationship ends, both sides have decisions to make. An employer may want to protect confidential information, arrange a transition, and resolve potential claims. An employee may need financial support, continued benefits, and clarity about the next job.

A severance agreement can address those concerns, but the details matter. The payment, release, and continuing obligations should reflect the circumstances of the separation. Employers should understand what they are offering and what protection the agreement provides. Employees should understand what they receive and what they are giving up.

Start with existing policies and obligations

A severance policy generally describes an employer's approach to eligibility and benefits. An individual severance agreement sets the terms of a particular separation. The two should be reviewed together, along with employment contracts and applicable benefit plans.

Severance is not automatically required simply because employment ends. The Fair Labor Standards Act does not require severance pay, although a contract, applicable policy, or benefit plan may create obligations.

Before making or evaluating an offer, identify what the employee is already entitled to receive. Earned wages, commissions, and benefits require attention to the governing terms. They should be distinguished from the additional value offered in exchange for a release.

Make payment and benefit terms specific

The headline severance amount is only part of the agreement. Both sides should know whether payment will be made in a lump sum or installments, when it begins, and what conditions apply. If payments may stop when the employee takes another job or allegedly breaches the agreement, those provisions deserve particular attention.

Employers should use terms they can administer consistently. Employees should understand whether the stated amount is guaranteed or conditional. Both should consider what happens if a payment is late, whether an alleged breach triggers notice and an opportunity to respond, and how a dispute will be resolved.

Benefits also need clear treatment. Identify when active health coverage ends, what continuation options may be available, and whether the employer will contribute toward premiums. Any promised contribution should specify its amount, duration, payment method, and conditions. Bonuses, commissions, accrued leave, equity, and expenses should be addressed as applicable.

Know what the release covers

A release commonly asks the employee to give up specified claims arising from employment or separation. Employers should consider the claims, parties, and time period covered. Employees should assess potential claims before deciding whether the offered consideration justifies releasing them.

The agreement should provide something of value beyond existing entitlements. Relabeling compensation already owed as severance does not make it new consideration.

A release also has limits. For example, an employee cannot waive future claims under the Age Discrimination in Employment Act or be prevented from filing an EEOC charge or participating in its proceedings. Broad language does not eliminate these protections. A carefully defined release helps both sides understand what has been resolved and what remains outside the agreement.

Use the correct review and revocation periods

When an agreement seeks a waiver of federal age discrimination claims from an employee age 40 or older, special statutory requirements apply. These generally include at least 21 days to consider an individual agreement, or at least 45 days for a qualifying group termination or exit incentive program, followed by at least seven days to revoke after signing.

Other requirements include clear language, a specific reference to the Age Discrimination in Employment Act, and written advice to consult an attorney. Qualifying group programs require additional disclosures.

These rules are not universal deadlines for every severance agreement. Settlements of an already-filed age discrimination charge or lawsuit follow a different rule requiring a reasonable period to consider the agreement. Employers should identify the applicable requirements before presenting an offer. Employees should understand the deadline, any revocation right, and when the agreement becomes effective.

Review obligations that continue after departure

Confidentiality, nondisparagement, noncompetition, nonsolicitation, and cooperation provisions can remain significant long after severance payments end. Employers should identify what protection they need and tailor the language accordingly. Employees should consider how each provision affects future employment, communications, and responsibilities.

For employees covered by federal labor law, overly broad confidentiality and nondisparagement provisions can unlawfully restrict protected activity. Coverage includes many nonunion employees, while supervisors are generally excluded. The employee's role and the actual wording matter.

Florida restrictive covenants also require attention to the applicable law and the particular agreement. A separation document may preserve, change, or add restrictions. Both sides should be clear about which obligations continue.

Cooperation provisions deserve similar care. If the employer expects assistance with a transition or later dispute, the agreement should address the expected scope, reasonable notice, scheduling, and any compensation or expense reimbursement.

Negotiate the terms that matter

Negotiation may involve more than increasing the payment. An agreed reference, clear departure announcement, benefit subsidy, payment schedule, or adjustment to a continuing restriction may be important to an employee and workable for an employer.

Employers should consider which terms serve a practical business purpose and where flexibility could help resolve the separation. Employees should identify their priorities and evaluate the package as a whole, including conditions that could reduce its value. Neither side should assume that a familiar form addresses the circumstances of this departure.

Whitelock & Associates, P.A. assists employers with preparing and negotiating severance agreements and employees with reviewing and negotiating proposed terms. To discuss a severance matter, call 954-463-2001 or visit whitelocklaw.com.

This article provides general information and is not legal advice. Reading it or contacting the firm does not, by itself, create an attorney-client relationship.