If you Google the term “separation agreements,” most Internet-based search results show a number of Web sites that address marital-related documents.
For the purpose of this HRTools.com Insight, however, I am introducing the topic—separation agreements—in another context, which is: those business agreements between an employer and employee.
These agreements are known by other names, as well, such as:
- Separation releases
- Termination agreements
- Severance agreements
- General releases
Given this spiraling economic downturn we’re in, and the related employee layoffs and downsizing events, you might hear this term—separation agreements—frequently referenced.
In my opinion, there is also a misperception floating around out there that separation agreements are a very common business practice. But given today’s economic circumstances with so many businesses experiencing financial crises, it is not as common a practice as one might think.
So, what is a separation agreement and why would a business generate such a document?
Basically, a separation agreement offers an employee something that they otherwise would not be entitled to, which usually is in the form of a monetary consideration. In exchange for this consideration, the employee agrees to fully release the company, and any affiliated companies, from any claims that he or she might have against them, as of the date that the release is signed.
However, the employee cannot give up any rights to what is entitled to them under the law, including both federal and state laws and regulations. For example, rights to any wages owed the employee: If state law requires that accrued vacation time be paid to an employee at the time of termination, then no separation agreement can override such a law or regulation, and that final vacation payout cannot be included in the separation agreement.
Standard Conditions
You may find the following standard conditions included in a separation agreement:
- The employee agreeing not to disparage the company or do or say anything that portrays the company, its products or personnel in a negative light; or that may injure the company’s business or affairs.
- The employee agreeing to meet a requirement that all company property is returned in good condition to the company.
In addition to the above, the employer might request additional provisions, which would make the separation agreement more of a nonstandard agreement. Some people might consider these nonstandard provisions as acceptable, and, then again, other people might consider them as too extreme for this type of agreement. Especially in these cases, I say, it’s always best to seek legal counsel.
Confidentiality Concerns and Age Criteria
It is normal procedure for employees to be required to keep the agreement and its terms as confidential (with the exception, normally, of immediate family members and tax preparers and attorneys, as long as they agree to keep that information as confidential).
These agreements are also prepared with employee age stipulations, and finalized as follows:
- One agreement for those employees who are under the age of 40; and
- One agreement for those employees who are either 40 or above the age of 40.
- For those employees under the age of 40, the employer can determine the deadline that the employee must meet for returning the agreement. I recommend you allow enough time, say 5-10 days, for the employee to have counsel review the document if they so choose. For employees aged 40 years or older, however, those employees are given up to 21 days to execute the agreement or 45 days if the employee is being laid off and the layoff affects two or more employees (regardless of age).
- Do not allow an employee to sign the agreement at the time it is given to them. Subsequently they might claim they signed under duress.
In closing, the above summarizes a few basic tenets of separation agreements. In my next Insight, I will share a few experiences to help employers become more aware of certain considerations. Also, the above information is intended as general information only, and, again, I recommend that employers seek legal counsel for definitive guidance about separation agreements.