10 Things Companies Want in Their Severance Agreements
The list below was taken from the Ohio Employers Law Blog written by Jon Hymen. The Ohio Employers Law Blog is written for companies and the ten items listed below are points that companies often include in their severance agreements. If you, as an employee, are provided with a severance agreement, you will probably see similar terms in your severance agreement. The ten points listed below might be useful to know about so you can understand why those terms are present. After some of the points listed below, I have added points from the employee’s perspective in bold.
1. Consideration: A statement that the consideration provided to the employee is more than that to which the employee is otherwise entitled to employment by way of employment. Otherwise, the release and waiver could fail for the employee not receiving anything of value in exchange.
Consideration is the legal term for an exchange of value. A contract is not enforceable unless there is a tangible exchange of value. In a severance agreement, the exchange of value is usually an extra payment to the departing executive in exchange for a waiver of the executive’s right to sue the employer. It is important that you understand this part of the severance agreement. You should not sign a severance agreement unless you understand exactly what you are getting and what you are giving up.
2. Confidentiality: A covenant as to the confidentiality of the agreement. You do not want other employees learning the terms of the separation, or that agreement was even reached. Otherwise, it could open the floodgates to other employees seeking separation packages.
As an executive who is leaving the company, you may also be interested in keeping the terms of your departure confidential. If so, you should ask your employer to make the confidentiality agreement mutual so it protects you as well.
3. Secrets: A covenant as to the confidentiality of employer’s confidential and proprietary information.
4. Return of Property: A covenant that all corporate property has been returned, or will be returned by a date certain.
In some cases, executives are escorted out of the building right after they learn of the termination and they never get the chance to remove their personal property from their offices. If this happens to you, be sure to include a clause in your severance agreement that requires the return of your personal property. It is best if you can list the items that you need to have returned.
5. Transition: A promise to reasonably cooperate with the employer as to the transition of job duties and responsibilities.
If the company is seeking your cooperation in transitioning your job to another employee, then you may also ask the company for assistance as you try to find alternate employment. As we all know, it is far easier to find a job when you have one and therefore it may help if you remain with the company in some limited capacity during your job search and retain your company email and a company phone number. It may serve everyone’s interest if you keep your company email and phone number for a few months so you can help the company transition your role and so that you can look for another job.
6. No-rehire: A promise that the employee will not apply for any positions in the future, and that the company is not obligated to consider him or her for future employment. Because there is some risk that a clause such as this could be viewed as retaliatory, indemnification language is not a bad idea.
If you work for a large organization such as General Electric, you may not want to sign a severance agreement that contains a no-rehire clause because they own so many other companies and this could bar future employment with any of them. We have had many clients run into trouble with these clauses as they try to obtain alternate employment. Also, I have found that many companies are willing to remove this clause upon request.
7. No Liability: A statement that the agreement is not an admission of liability.
8. Governing law, Jurisdiction, and Venue: An agreement as to the law that will govern the agreement, and the jurisdiction and venue in which one must file any lawsuit regarding a breach of the agreement.
9. Entire Agreement: An integration clause, stating that the written agreement is the parties’ entire agreement, that no other written or oral agreements exist, and that the parties may only amend the agreement in writing signed by all.
10. Voluntariness: An acknowledgement that the employee read and understands the agreement, and had sufficient time and an opportunity to consult with his or her own legal advisor prior to signing the agreement.