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By: Marc E. Bernstein, Paul Hastings LLP
This article addresses initial preparations for drafting a separation agreement and common terms that employers ordinarily should include, or at least consider including, in separation agreements.
WHEN TERMINATING AN EMPLOYEE’S EMPLOYMENT, THE employer often requests that the departing employee execute a separation agreement. In doing so, the employer seeks to obtain a comprehensive and defensible release of all real or perceived claims that the employee may legally waive in exchange for payments and/or benefits to which the employee is not otherwise entitled, which will be the consideration for the agreement. As the employer’s attorney, you must ensure that the separation agreement is comprehensive, valid, and enforceable so that the employer can successfully avoid litigation and other risks stemming from the termination.
If possible, the employer should have the separation agreement prepared in advance so that it is available for distribution to the employee at the time of the termination. The earlier you become involved in separation discussions, the more valuable you will be to the employer during the preparation and negotiation of a separation agreement.
Once involved, you should review the relevant employer policies and documents relating to the specific termination at issue—whether related to a layoff or a one-off termination—to ensure that the separation agreement is consistent with them. The documents that you should review ordinarily include:
Any of these documents may contain formulaic separation payments based upon position and years of service, partial incentive payments, payment for accrued sick or vacation days, and outplacement. Agreements specifically between the employer and the employee may also contain non-standard severance terms, such as continued vesting of incentive compensation, bonus payments, and restrictive covenants that often remain in effect following termination.
To read the full practice note in Lexis Practice Advisor, follow this link.
For additional guidance on separation agreements specifically tailored for executives, see
> DRAFTING COMMON PROVISIONS IN AN EXECUTIVE SEPARATION AGREEMENT
RESEARCH PATH: Employee Benefits & Executive Compensation > Employment, Independent Contractor, and Severance Arrangements > Executive Separation Agreements & Severance Plans > Practice Notes
For detailed advice on meeting the waiver requirement set out in the Older Workers Benefit Protection Act, see
> COMPLYING WITH THE HEIGHTENED WAIVER REQUIREMENTS UNDER THE OLDER WORKERS BENEFIT PROTECTION ACT
For a detailed discussion on the application of the non-qualified deferred compensation rules of Section 409A of the Internal Revenue Code, see
> SECTION 409A AND SEVERANCE ARRANGEMENTS
RESEARCH PATH: Employee Benefits & Executive Compensation > Nonqualified Deferred Compensation > Practice Notes
For an overview on how to use bargaining power and leverage to negotiate favorable separation agreements for executives, see
> STRATEGIES FOR NEGOTIATING EXECUTIVE SEPARATION AGREEMENTS FOR EXECUTIVES
For a sample annotated executive separation agreement with practical guidance and drafting notes, see
> EXECUTIVE SEPARATION AGREEMENT (PROEMPLOYER)
RESEARCH PATH: Employee Benefits & Executive Compensation > Employment, Independent Contractor, and Severance Arrangements > Executive Separation Agreements & Severance Plans > Forms
For state-specific separation agreements, see
> INVESTIGATIONS, DISCIPLINE, AND TERMINATIONS STATE EXPERT FORMS CHART
RESEARCH PATH: Labor & Employment > Investigations, Discipline, and Terminations > Discharge and Layoffs/RIFs > Forms