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Monday, July 11, 2022

This is why I (almost) always recommend that employers provide terminated employees a reasonable severance package


Roosevelt Jointer worked as a maintenance supervisor at Tesla from September 2017 until last month. That was when his manager called him over the phone, during Jointer's vacation, to tell him that he had been fired. 

Business Insider quotes Jointer about what was said during that call:
I did not receive any advance notice that I would be losing my job. Up to that point, no one at Tesla ever raised any issues with me regarding my performance.

During this call, my manager told me that I would receive a severance offer over an e-mail and urged me to sign a separation agreement to get a severance payment of one week's salary [and two months of health insurance].

He did not sign the agreement. 

A five year employee + no performance issues + termination with no prior notice + an offer on one week's severance pay = a lawsuit.

That's exactly what Jointer did. He's now suing Tesla.

With the exception of a "for cause" termination in egregious circumstances (e.g., unlawful harassment, theft, violence, breach of confidentiality), I'm a firm believer that almost all terminations should be communicated with an offer of some amount of meaningful severance pay. It not only cushions the blow for the employee who may be losing his or her job through no fault of his or her own, but also presents an opportunity for the employer to get something positive out of bad situation. For one thing, an offer of severance should always be tied to a release by the employee of any and all possible claims against the employer and a waiver not to sue. Thus, the employer is buying certainty that agreement is the last the employer will see of the employee, and certainly that they will not cross paths again in court.

Note that I say meaningful severance pay. The idea with a severance package is to entice to employee to sign, not to insult the employee and push him or her into the arms of their friendly neighborhood plaintiff's lawyer.  

Other than the aforementioned release and waiver in exchange for severance pay, what else should an employer include in a severance agreement. Here are my thoughts:

  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.

  2. No other compensation owed: It's always a good idea to obtain a representation from the terminated employee that all compensation owed has been paid. This includes unpaid overtime or other wages, bonuses, commissions, etc. You should also set forth how compensation issues like unused vacation time or other PTO will be handled. If you owe it as a matter of law then a simple statement that it was paid as part of the employee's final paycheck should suffice. If it's otherwise not owed by law, will it be paid as part of the consideration for the release and waiver? 

  3. 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.

  4. Secrets: A covenant as to the confidentiality of employer’s confidential and proprietary information. If there is a prior agreement relating to non-disclosure of trade secrets or other confidential information, non-solicitation, or non-competition, it should be incorporated here as well so there is no argument that it's been released.

  5. Return of Property: A covenant that all corporate property (including data) has been returned, or will be returned by a date certain.

  6. Transition: A promise to reasonably cooperate with the employer as to the transition of job duties and responsibilities, or to cooperate relating to ongoing litigation if the employee's testimony is reasonably anticipated.

  7. Unemployment: A promise not to challenge or oppose unemployment (although you will answer questions truthfully if posed by a state unemployment agency).

  8. References: Will you provide a job reference for the employee? If so what will it say, who in the organization will provide it, and to whom should requests be directed?

  9. Non-disparagement: Unless you don't care about a terminated employee trashing your company in the marketplace, it's best to have him or her confirm in writing that such won't happen. And don't forget about social media sites, too.

  10. 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.

  11. No Liability: A statement that the agreement is not an admission of liability.

  12. 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.

  13. 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.

  14. 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.

  15. Age discrimination disclosures: If the employee is age 40 or older, the Older Workers Benefit Protection Act requires a consideration period (21 days for a single employee termination / 45 days for a group termination), a seven-day revocation period, and other indicia of voluntariness. You can read all about this Act's requirements here.
What provisions do you consider essential to your severance agreements or what have I missed that you always include in yours. Drop a comment below. I always love to learn.