The following is a guest post from Tammy Marzigliano, a partner at New York’s Outten & Golden, a leading employee-side law firm, and Piper Hoffman, a former Outten & Golden partner who now blogs at PiperHoffman.com. I don’t think it’s always necessary to hire a lawyer to negotiate your severance deal, but Marzigliano and Hoffman make a case worth considering. (If you’d like more food for thought, in April I wrote a piece, How To Negotiate Severance.)
When now-bankrupt Solyndra fired CEO Chris Gronet, he negotiated a severance package worth close to half a million dollars, according to a recent Washington Post report. Severance agreements can be worth big bucks, but they can also impede success in future jobs through restrictions on competition and use of information. The smart money is on hiring an attorney to negotiate and review the deal before you sign on the dotted line.
Besides the value of the package, there are several types of clauses in almost all severance agreements that employees should be aware of. Often an attorney can negotiate to rewrite or remove unfavorable language, or else to obtain additional compensation in exchange for retaining it. Below are the top ten examples of separation agreement provisions that an employee should have an attorney review.
1. The Severance Payment: If an employee is already entitled to receive a severance payment, whether pursuant to an employment contract or company policy, there is no need to sign a severance agreement to get that money. An attorney can help ensure that if the employee does sign an agreement, it provides more than any severance payment the worker was already entitled to. Experienced lawyers may also have a sense of whether the amount of severance the employer is offering is within the usual range for the relevant profession or industry.
2. Money the Employer Owes: An employer who owes an employee money ““ e.g., for unused vacation time or unreimbursed expenses ““ must pay it regardless of whether a severance agreement is signed. If the parties do plan to sign one, it should include a date by which the employer must pay what it already owes the employee.
3. Employee Benefits: A severance agreement should explain what benefits the employee will receive upon separating from the employer, such as any continuation of health coverage and the employee’s right to stay in the employer’s medical plan temporarily under the federal COBRA law.
4. Release of Claims: Employers usually want severance agreements to get one concession in particular: a release by the employee of all legal claims against the employer. The general releases that employers draft often require employees to give away the store; an attorney can fight to make the release more balanced by, for instance, making it mutual so the employer releases any claims it may have against the employee. There are several potential claims and entitlements not to release in a severance agreement: any rights under COBRA; the right to seek unemployment insurance benefits uncontested by the employer; the entitlement to any accrued and vested pension benefits, stock options, restricted shares, or other benefits provided by company plans; the right to take legal action to enforce the severance agreement itself; and any right to indemnification (legal protection against claims from a third party) by the employer.
5. Non-Disparagement and References: Severance agreements usually include a clause barring the employee from disparaging the former employer. A lawyer can negotiate for a reciprocal prohibition on the employer (or, more specifically, a select group of employees, which can include executives) against disparaging the worker. Also, the employee’s attorney can negotiate how references will be handled and what information will be provided to potential future employers.
6. Integration Clauses: Any oral promise an employer or its attorney makes to the employee is not binding unless it is written down in the severance agreement that the parties sign. If under the table ” or handshake assurances aren’t honored, the employee is out of luck ““ they are very rarely enforceable in court. A lawyer can help make sure that all of the employer’s promises will be enforceable.
7. Proprietary Information: Employers usually use severance agreements to prevent former employees from using proprietary information in their future work. An attorney can work with the employee to identify and document the return of all proprietary information. In some cases, the lawyer can negotiate a carve-out of certain information that is valuable to the employee (e.g. performance evaluations) so it can be used in future employment or business.
8. Restrictive Covenants: Many employees are bound by non-compete and non-solicit agreements created in employment contracts or other documents they have signed. These agreements prohibit the employee from competing with the employer in certain areas for a specific amount of time, and from hiring other workers away from the employer. Where these restrictions already exist, a lawyer should ensure that the severance agreement does not expand them. Where the employee has not already entered agreements on these topics, the attorney can work to limit the time and scope of restrictions the separation agreement imposes.
9. Confidential Information: Employers emphasize the importance of keeping the severance agreement and its terms confidential, but an attorney can create carve-outs that allow the employee to inform immediate family, attorneys, accountants, and tax advisors of the agreement’s contents. There should also be a carve-out that if the employee receives a subpoena, he or she will testify fully and truthfully in court regardless of the confidentiality provision.
10. Cooperation Provisions: Severance agreements often require the employee to cooperate fully with any legal proceeding or investigation involving the employer. The employee’s attorney can negotiate to scale back this provision by changing the requirement from full ” cooperation to reasonable ” cooperation that suits the employee’s schedule, and to create a right to sufficient notice of the need for cooperation. The severance agreement should also charge any costs the employee incurs as a result of cooperating, such as travel, legal expenses, and the cost of his or her time, to the employer.
Severance agreements are often filled with land mines and can be challenging to navigate. They can also yield big payouts, like the one Chris Gronet got from Solyndra. It is important to hire an attorney to review a severance package but not just any attorney. Just as a client would not hire a real estate lawyer to defend him or her in a criminal proceeding, an employee should think twice about having the lawyer who handled, for example, his or her will, look over ” a separation agreement. An experienced employment attorney can help protect employees, including executives and professionals, from the risk of waiving rights unnecessarily or leaving money on the table.