Employment Separation Agreements
Employers sometimes let employees go. Sometimes it’s for cause, and sometimes not. But when they do, they may leave themselves open to a potential lawsuit by the employee. In an effort to avoid a lawsuit, many try to make an agreement with the employee. While many people think that these agreements are boilerplate documents that everyone signs, they are often heavily negotiated and there are no requirements for employers to offer them. So I thought it made sense to discuss how they work.
Why should you read this post about employment separation agreements?
You just got fired and you want some information about what comes next and some insight into the paperwork you may have received.
You are an employer and you want to know why the employees you fire act like they are entitled to more money.
Your former employer requires you to do so to get money from them.
Image credit: https://en.wikipedia.org/wiki/Divorce#/media/File:Marilyn_Monroe_and_Jerry_Giesler_3.jpg
The Employer Wants a Release
When considering a separation agreement, it is helpful to keep in mind that it is basically a sale: an employer wants a release and is willing to give things to the employee to get it. The release is valuable to the employer because it protects it from a lawsuit. And so when employers act like they are being generous to an employee by offering a severance or a separation agreement, that may not be entirely true. What they really are often doing is buying protection.
How valuable is that release? Well, it depends on how serious the risk is that the employee could sue and win. If the employee has a really strong racial discrimination claim and is owed a lot of wages and is really willing to sue and wait awhile for that lawsuit to succeed, then the release may be very valuable. If the employee was fired for cause and is a young, non-veteran, non-disabled, non-religious, straight white male (making him less likely to have a viable discrimination claim) who has openly admitted he has no interest in suing anyone, then the release may not be very valuable.
Determining the value of the release is useful in figuring out how much an employer will pay. This leads to a strange conversation with the employee, figuring out what claims they have and how they would assert them even though the employee may never actually go to court.
An employer may not just want the release, however. It may also want additional clauses, like a non-disparagement clause or a non-competition clause. The value of these clauses may provide leverage to an employee when bargaining for money.
The value of the release and other terms also helps employees negotiate with employers. Employers may provide a deadline for the employee to accept terms or present an agreement as non-negotiable. But if the employer is willing to buy a release for a certain sum on Monday, it is likely willing to make the same deal on Wednesday and for similar terms. For this reason, employers may be more flexible than employees may realize at first.
Standard Terms
Every negotiation is different and some employers may offer very different terms than others. Some big companies have a lot of money and are generous to outgoing employees. Some employers are less generous and offer very little. There are usually no requirements for the amount of a severance.
With that said, employers often offer one week of pay for every year an employee worked at a company. So an employer may offer two weeks’ worth of pay to someone who was fired after two years of service. At the same time, I rarely see severances that include any pay that provide less than two weeks of pay, especially since the cost of litigating the most frivolous claim is usually more than the cost of two weeks of pay. And I rarely see severances for more than six months of pay. Most that I see provide one to three months of pay.
But the amount of pay is not the only term. Employers often seek non-disparagement clauses, non-competition and non-solicitation clauses, and promises to aid the employer in certain circumstances.
How Negotiations Often Go
Often, when an employer fires an employee, the employer will offer the employee a separation agreement. And, often the employee signs it. But sometimes, whether or not the employee received a proposed agreement, the employee may seek advice from a lawyer.
If the lawyer agrees to help the employee negotiate a better deal (or a deal at all if the employer did not offer one), the lawyer contacts the company (often by calling or emailing the Human Resources department or the person who fired the employee) and says that she represents the employee. This usually triggers the employer to have its own lawyer respond to the employee’s lawyer.
The two lawyers connect and participate in a pretty standard back-and-forth. The employee’s lawyer explains how her client has been seriously wronged by the employer and could go to court and get a lot of money, but is willing to avoid litigation for a slightly lower but still large amount. The employer’s lawyer responds by saying that none of those allegations are true, but the employer is willing to offer the same amount it initially offered or maybe a little more. This goes back and forth for awhile until either the parties agree on a number or until the employee’s counsel files a claim.
Even after the claim is filed, the negotiations may continue. In my experience, employers are much more willing to increase their settlement offer once it becomes apparent that the employee is actually litigating against them and not just making an empty threat. But filing a lawsuit does not definitely mean an employee will get a good settlement; many employers have insurance policies that cover the costs of litigation and so they would prefer to litigate rather than settle. And others are confident enough in their claims to litigate rather than be shaken down for cash.