Contrary to popular belief, employers are not obligated to provide severance pay upon an employee’s termination of employment due to a layoff. If an employer does choose to provide severance pay, it should be accompanied by a severance agreement.
The most important provisions in a severance agreement are those regarding payment, non-competition, and the release of claims. In a severance agreement, the employee typically agrees to accept payment in exchange for agreeing to release employer from claims he or she may have against employer. It is also very typical for a severance agreement, like many employment agreements, to include a non-compete provision. An agreement not to compete should be reviewed for reasonableness, which will vary depending on the specifics of the situation.
It is recommended that employers offer the terminated employee a reasonable period of time to consider signing a severance agreement with a release. A release is unenforceable unless the employee voluntarily executes it, i.e., the execution is not the result of duress or coercion.
Employers should make sure to have legal counsel draft or review their severance agreement to ensure that the employer is adequately protected. Employees should consult legal counsel before signing a severance agreement to ensure that the agreement terms are fair and reasonable.
This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.
