Severance Agreement and Employment Contract Review

A severance agreement/separation agreement is a contract between an employer and an employee who has been terminated or laid off in which the employer typically agrees to pay the outgoing employee money and/or benefits and the employee usually agrees to give up his or her legal rights to sue the employer for any legal claims. Under Illinois law, businesses are generally not required to provide severance to employees that are terminated or laid off. Despite this, many businesses have implemented severance polices that award employees for their length of service while securing a release of claims from an employee.

We offer a special program on behalf of employees to review and advise them regarding their severance agreements and we regularly draft severance agreements for employers.  The fairness of a severance agreement in Illinois often depends on the nature of an employee’s termination.   For example, if there was something improper about the termination, an employee may not want to give up their legal rights or may want to negotiate better severance agreement benefits.

Severance packages often include one or more of the following: (1) severance pay based on the employee’s wages, (2) continuation of health insurance and other benefits at the employer’s expense; and (3)  out-placement services. Severance packages are sometimes offered in terms of weeks based on the length of the employee’s employment. Of course, each employer will differ in its offer, and employees should be prepared for an offer that may differ from that discussed here. Further, employees should keep in mind that unless the employee has a written employment agreement that provides for a severance upon termination, the employee has no specific right to a severance payment and may not be offered any severance at all.

In offering a severance agreement, the goal of the employer is often to prevent a possible lawsuit as a result of the termination. For the employee, the goals are likely to maximize the amount of money obtained as part of the severance, obtain all of the benefits that she or he is entitled to and ensure that his or her subsequent job search is not hampered by having been terminated. The ultimate goal for both parties, however, should be to reach a fair and equitable agreement that offers adequate protection for both sides.

An employee who is offered a severance package should be prepared to address the following:

• Severance Amount: As discussed above, the amount offered as severance may be based on the length of years an employee has worked at their employment. The amount of a severance can vary greatly between companies depending on the company’s individual policy.

• Health Insurance: The Severance Agreement should detail the continuation of health insurance benefits, how long such benefits will last, and due dates of any payments the terminated employee must make payments by.

• Restrictions/Waivers:  Severance Agreements sometimes contain oppressive and illegal terms that are not standard.

• Re-Employment: The Agreement should set forth terms relating to whether the employee is eligible for re-employment, when they may be considered for such re-employment, and how they may apply for such re-employment.

• Non-Disparagement Clause: A non-disparagement clause provides that neither party to the agreement may speak negatively of the other to third parties. In Severance Agreements, a non-disparagement clause will help employees because their employer cannot make unfavorable comments about them to prospective employers. On the other hand, a non-disparagement clause will help employers because their employee cannot make unfavorable comments to other employees, clients, or customers.

• Release of Claims: A severance Agreement will likely contain a comprehensive list of the types of claims and lawsuits the employee agrees to give up upon execution of the agreement. Typically, this claim list will be very comprehensive and will contain almost every conceivable claim with the exception of those claims that cannot be waived in a general release.

Sometimes, a severance agreement will also contain a non-compete agreement, which restricts the employee from working a company in the same or similar industry within a geographic area for a specified period of time. A non-compete agreement can greatly restrict an employee’s ability to find a new job.

 

Our employment law firm has extensive experience in assisting clients in drafting, reviewing, and negotiating severance agreements from both the employee’s and the employer’s position. Our firm will assist clients in ensuring the severance agreements are reasonable and sufficient.