Combatting the Risks of Departing Employees Part 12:  Best Practices For Severance Agreements With Departing Employees


Continuing the series on combatting the risk of departing employees, this post discusses best practices for utilizing a severance agreement when the employee is terminated or resigns.

A severance agreement involves the employer paying the employee a lump sum at the time of her departure in exchange for the employee's promise that she will or will not do certain things after she leaves her job.  The typical severance agreement will require the employee to waive her right to file a lawsuit against the employer, as well as other safeguards to protect the employer's interests.  Generally, Ohio courts will enforce the terms and conditions of a severance agreement reached between the parties, which makes severance agreements an effective tool to minimize or eliminate the risks of a departing employee.

Severance agreements should be drafted to the specific circumstances surrounding the employee's departure, but there are some key considerations an employer should evaluate when drafting a severance agreement for a departing employee:

Employee's release of claimsGenerally, most claims that an employee can bring against an employer can be waived in a valid severance agreement.  The employer should list each and every potential claim that the employee is waiving with a catchall provision stating that the employee waives every claim she is legally permitted to waive.  Certain types of claims, however, are expressly prohibited by law from being waived.  For example, an employee cannot waive her right to file a charge seeking an injunctive remedy with the Ohio Civil Rights Commission or U.S. Equal Employment Opportunity Commission.  In addition, the employee cannot waive her right to file a claim for unemployment benefits with the Ohio Department of Jobs and Family Services.

Waiving age discrimination claims.  Special rules apply to severance agreements for employees over the age of 40 who are waiving their right to sue for age discrimination.  The severance agreement must specifically state that the employee is waiving the right to sue under the Age Discrimination in Employment Act ("ADEA").  If the departing employee is waiving her rights under the ADEA, then the employer must give the employee at least twenty-one days to consider whether to sign the agreement, and at least forty-five days if the employee is being let go as part of a group termination.  In addition, employees over forty have seven days after they sign the agreement to revoke their acceptance.  Thus, the employer should wait to remit the severance payment for at least seven days after an employee over forty signs her severance agreement.

Severance payment.  The employer and employee are free to negotiate the amount the employee will receive as a severance payment.  All wages earned by the employee while still working for the employer must be paid by the next regularly scheduled pay period.  Any lump sum severance payment can be made at any time agreed by the parties.  After stating the amount of the severance payment, the agreement should state that the employee has not been promised any additional payment for complying with the conditions of the severance agreement.

Accrued PTO.  Unless the employer's paid time off ("PTO") policy states otherwise, an employee may be entitled to be paid for accrued but unused PTO.  If the employer has a clear policy stating that PTO is forfeited on resignation or discharge, then courts will generally enforce that policy.

Encourage the employee to consult an attorney.  The employee must knowingly and voluntarily waive her rights to bring claims against her employer.  Severance agreements should include a provision stating the employee represents she had the opportunity to consult an attorney before signing the agreement.

Return company property.  The severance agreement should also state that the employee represents she has returned all company property before she leaves.  This should include all electronic devices, keys to the workplace, and all physical or electronic files.

Non-Disparagement.  The severance agreement should prevent the employee from speaking negatively about the employer after the employee leaves.  The non-disparagement clause can be mutual, but it does not have to be.

Confidentiality.  The terms and conditions of the severance agreement should remain confidential.  Provided, however, that the employee may disclose the terms of the agreement to her attorney and in communicating with any governmental agency as part of an investigation.

Severance agreements can be an effective tool to protect the employer from the risks of a departing employee.  They provide finality to the employer's relationship with the former employee and, in some cases, prevent litigation (and its associated costs) from ever arising.  

About The Author

Clayton Prickett | Faruki Attorney