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Severance Agreements - A Corporate Attorney's Prospective

By: Edwin J. Hull, Esquire

During troubled economic times when unemployment rates are on the rise, Severance Agreements increasingly become associated with employment relationships. While Severance Agreements are used most often with managerial personnel or employees who have had a relatively long tenure with their employer, individuals in all types of positions are confronting such Agreements more and more frequently. This article briefly discusses the functions of and various clauses utilized in Severance Agreements from both the prospective of the employer and employee involved.

A Severance Agreement serves two primary functions. From the employee's prospective, the agreement provides a financial cushion for the termination by providing for the continuation of monetary payments (either as a lump sum or on an on-going basis) and/or certain other benefits such as health insurance for a period of time following the end of the employment relationship. The former employee's transition period between jobs is made somewhat easier as a result of the compensation and benefits received under the Severance Agreement.

From the employer's prospective, a Severance Agreement is designed to promote various objectives. From the standpoint of fairness, a severance package allows the former employer to reward a departing employee for his/her prior service. Additionally, and in most cases of greater importance to the employer, Severance Agreements typically contain broad, full and final releases covering any legal claims the former employee otherwise may have considered bringing against the former employer for unlawful discrimination, harassment, etc.

At times, employers also will utilize Severance Agreements to obtain additional and/or enhanced protections pertaining to certain post-employment activities of the former employee that could otherwise harm the business of the former employer. For example, Severance Agreements sometimes include non-compete covenants or, in cases where a non-compete agreement is already in place, provisions can be included in the Severance Agreement that expand the coverage of the existing restrictions with respect to either duration or geographical scope. There may also be clauses that otherwise benefit the former employer such as provisions that prohibit disparaging statements about the company from the former employee.

There are also occasions when a Severance Agreement is utilized to resolve a dispute between the employer and the departing employee, such as sometimes arise when an employment is involuntarily terminated by the employer. The employee receives additional compensation and benefits that he/she would not otherwise have been entitled to in return for agreeing to amicably settle the dispute.

In conclusion, the assistance of experienced legal counsel can prove invaluable to both parties to a prospective severance arrangement, employer and employee. An attorney practicing in this field can ensure that his particular client's objectives are promoted by the language of the Severance Agreement itself.