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Severance Agreements
Richard Friedman, Employment Attorney

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Richard Friedman Severance Agreements

Richard Friedman is the Managing Attorney of Richard Friedman PLLC, a 7-lawyer employment & commercial litigation firm. Among his areas of expertise, Richard represents executives in connection with severance, employment & related agreements. He serves on the NY County Commercial Division’s Advisory Committee.

What are some key details employees should look for in a severance agreement?

All severance agreements should include the amount of severance compensation to be paid to the former employee as well as the timing of the payments. Although some companies have severance policies which tie payment amounts to the length of an employee’s service, most are willing to negotiate terms that are more favorable to the former employee in exchange for a general release in the company’s favor (particularly where the former employee has at least a theoretically cognizable cause of action).

Some of the other financial terms addressed in severance agreements, which will vary depending on the seniority of the employee, are:

  • health insurance;
  • unused vacation time and/or sick leave pay;
  • earned and unpaid “bonus” payments; and
  • vested and non-vested stock options.

Severance agreements of senior executives often provide the former employee with a certain period of outplacement services to assist the former employee in securing his or her next position. As a general matter, severance agreements should provide that the company will respond to inquiries from prospective employers by solely providing the former employee’s dates of employment and the last position he or she held.

Severance agreements, indeed all agreements, should have choice of law and choice of venue provisions which identify the state law which governs, as well as the state and/or federal courts or arbitration organization (such as the American Arbitration Association), which will adjudicate any dispute. A severance agreement should also provide that it is the entire agreement between the parties and supersedes any prior agreements between them such as the employment agreement.

If an employee is asked to agree to restrictive non-compete provisions, he or she should seek additional monetary compensation as consideration for doing so.

 

Is a non-compete clause ever negotiable when leaving a company?

Although non-compete provisions are often contained in employment agreements (when employers generally have maximum leverage), such provisions can often be modified when employees have been terminated other than for cause, such as during a layoff.  (Companies are generally much less willing to do so when the former employee has been terminated for cause.)

Where the employee has been terminated other than for cause, there is at least the theoretical possibility that the former employee could initiate litigation against the former employer based on some actual or imagined wrongdoing, such as a form of discrimination or retaliatory discharge. In such circumstances, companies often are willing to enter into severance agreements to secure a general release from the former employee and will often agree to modify (or even eliminate) non-compete provisions in the person’s employment agreement (or another agreement signed during the employment).  Well represented individuals who find themselves in this situation often can secure monetary and non-monetary benefits in exchange for granting a general release.

 

During severance negotiation, if a company says it will only verify employment, can an employee still negotiate for one positive written reference?

Generally, severance agreements should provide that the company will respond to inquiries from prospective employers by solely providing the former employee’s dates of employment and the last position he or she held. This is very important whenever the person has been terminated, but never more so than when the person has been terminated for cause. Although other employment lawyers may think differently, it is almost never a good idea to allow a former employer carte blanche to characterize a former employee’s performance or to describe the circumstances which led to the cessation of his or her employment.

Having said that, some former employees will want to have a former supervisor validate their capabilities.  Although this is best done when the former supervisor is no longer employed by the former employer, circumstances could certainly arise where the former supervisor agrees with the former employee to provide his or her personal thoughts to a prospective employer, subject to the disclosure that he is speaking on his own behalf and not on behalf of his employer.

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