Employee Guide to Employment Separation Agreements

© Richard E. Yaskin, Esq., 5/21/2015

When employees’ jobs are eliminated due to a reduction in force (RIF) or layoff, employers commonly offer severance pay conditioned on the signing of a General Release of legal claims. General Releases are also used in job terminations where the employer wishes to pay additional consideration to avoid the future risk of a lawsuit.

This article explains terms that are commonly included in a separation or severance agreement. The strategic choice of whether to accept or seek to renegotiate the proposed severance amount and terms is beyond the scope of this article. These strategies should be considered in consultation with an experienced employment lawyer.

1. The General Release

This clause broadly waives legal claims for a large number of causes of action whether they are known or unknown, suspected or unsuspected, by the employee. The Release should and usually does state the limitation: “based on anything that has occurred up until now.” This limitation follows the public policy not to waive legal claims where the underlying factual events have not yet occurred.

Where a foreseeable claim is outside the scope of employment-related claims intended to be released, these potential claims should be specifically preserved. Claims that should be considered for exclusion from a General Release include:

  1. Workers compensation claims – the NJ Workers Compensation statute requires that all settlements of a compensation claim be exclusively conducted before and approved by a Judge of Compensation.
  2. Unemployment compensation claims – this statutory claim is brought before the Division of Unemployment Compensation and any benefits awarded are paid from State funds. There is a later potential charge back assessment against the employer’s account.
  3. Claims relating to distribution of employee benefit plan funds such as a 401(k). These ERISA protected funds are usually the vested rights of an employee.
  4. Third party suits such as professional negligence vs. the employee, where a professional employee shouldn’t waive his unrelated right to join the employer in the patient’s suit for comparative negligence, contribution or indemnity.

2. The (sometimes mutual) Confidentiality provision

When paying a premium severance amount to secure an employee’s General Release of legal claims, employers typically try to keep the terms, and sometimes even the fact of settlement, confidential. They do not want employees who receive a premium amount publicizing this to others.

Typically exempted from confidentiality requirement are communications with the employee’s spouse, attorney and tax advisor, provided that these parties agree to honor the employee’s confidentiality obligation. Employees are well advised to request mutual confidentiality, if only to reduce the risk of a false or mistaken claim that the employee breached the confidentiality provision.

3. The (sometimes mutual) Non-Disparagement provision

Employers often seek assurance that a terminated employee will not seek retribution following termination by criticizing the employer or its practices.

A reciprocal non-disparagement clause is also important to a terminated employee, since employees often require their employer’s assistance (or at least non-interference) in seeking new employment.

4. The neutral reference

An employer will typically agree to provide a neutral reference provided that the prospective employer makes contact through its Human Resources Department. This information usually consists of the dates of employment, last position held, and where specified, last salary earned.

Occasionally, an employee can negotiate the terms of a favorable reference letter, the contents of which an employer will agree to affirm in response to verbal inquiries. An area for careful consideration is what the employer will say if asked whether the employee is “eligible for rehire.”

5. The terms of payment, deductions and withholdings, continuing
health insurance

Payment of severance can either follow the employer’s payroll practices or be made in a lump sum. Either way, the employee will receive a net-paycheck(s) reflecting deductions and withholdings as were made during the course of employment. Ideally, the employee will be permitted to remain on the employer’s health plan for the time period that severance is paid.

Once health plan coverage is to end, an employer may be required to issue timely notice of continuing health benefits available under COBRA or a similar state statute applicable to small employer plans. In light of the Affordable Care Act, employees must carefully coordinate their eligibility for continuing health coverage under the ACA vs. COBRA plans.

If you have questions about these or other terms of a proposed Separation Agreement, or wish to discuss seeking the negotiation of a greater severance amount, please feel free to contact the Law Offices of Richard E. Yaskin.