GUEST POST BY BRANDON SLOANE
Severance agreements, which are contracts between an employer and an employee that contain certain rules and guidelines for when an employee is terminated, may be regarded as somewhat of an afterthought by employers. An employer might think to himself, “the employee is leaving the company to go his or her own way, so what is there to worry about?” Despite this fact, it is imperative that anyone involved in the hiring process has an employment lawyer review a proposed severance agreement. A poorly drafted severance agreement can have long term legal and economic consequences for a business.
Benefits of an Employment Attorney
1. Protecting an Employer from Liability
One of the primary benefits offered in severance agreements is a liability waiver, which is a clause stating that in exchange for some consideration provided by the employer in termination (usually in the form of monetary compensation), the terminated employee agrees to waive or release any potential claims he or she may have against the company.
An employer may think that using standard liability waiver clause language from legal technology websites would be sufficient for their agreements, but this is not always the case. Each state has its own body of statutory provisions and caselaw concerning what is allowed in waiver agreements. Without the help of a seasoned employment attorney, an employer may inadvertently include (or exclude) certain words or phrases that invalidate the waiver. Such an invalidation would expose the employer to many types of litigation, including wrongful termination, breach of contract, and breach of implied covenant of good faith and fair dealing.
In addition to preventing accidental invalidations of liability waivers, employment attorneys can add in language specifically aimed at preventing costly litigation. A prime example of this issue involves the Massachusetts Wage Act (c. 149, sec. 148 et seq.). Violators of the Wage Act are required to pay treble damages to winning plaintiffs (meaning that employers found guilty of violating the Wage Act automatically owe triple the amount originally owed to the employee, plus attorneys’ fees). If an employee was owed wages earned before termination, he or she could file a Wage Act lawsuit against the employer even after the employment relationship has ended. However, there is Massachusetts caselaw that allows for agreements in which an employee consents to releasing the right to file a Wage Act claim. See Gordon v. Millivision Holdings, LLC, 19 Mass. L. Rptr. 61, 3 (Mass. Supp. 2005). An employment attorney would know the exact right language to include in a severance agreement to ensure that the employee has properly released his or her Wage Act claim against the employer.
2. Guarding Company Confidentiality
Similar to liability waivers, severance agreements can include clauses binding the terminated employee to keep certain information about the company confidential. Employment law attorneys will be aware of the legal requirements for what can and cannot be included in a confidentiality clause in a severance agreement.
3. Restricting Competition
A staple of the severance agreement is the non-compete clause, which restricts the ability of the former employee to work at competitors within a certain geographic area and for a fixed time period. In 2018, Massachusetts enacted sweeping changes to its non-compete law. For smaller businesses that may not have had to make any hires in the past few years, they may be unaware of these changes. An employment law attorney would certainly be up to date on the law, and could ensure any non-compete clause didn’t violate the new legislation.
4. Ensuring an Employer’s Benefit Obligations have been Fulfilled
Most employers offer a set of perks and benefits designed to entice employees to work for them. These can include offering sick/vacation/PTO days, medical benefits, stock options, and retirement/pension plans. Terminating the employment relationship can have legal ramifications relating to the benefits that have accrued to the employee. An employment attorney could review an employer’s benefit plans and determine what termination would mean for these benefits, and design a severance agreement crafted to shield the employer from unnecessary liability.
5. Tailoring Specific Agreements for Problem Employees
Employees are like snowflakes: no two are exactly alike. Because of this, sometimes a severance agreement will require a clause or two that are tailored only to the one employee. This is especially true for problem employees, who employers may be worried about divulging confidential information, soliciting company clients, or even trying to poach current employees away from the company. An employment attorney will be able creating the right severance agreement for a problem employee, and also can help an employer come up with the right strategy to use when terminating the employment relationship to create as few headaches as possible.
In summation, when it comes to creating severance agreements, if you aren’t going to craft them with the help of an employment law attorney, you might be better off not using them at all. There are simply too many potential hazards that can arise from a poorly executed severance agreement to not have the assistance of a lawyer who is an expert in the field.
Brandon Sloane is a third-year student at Boston College Law School. He aspires to become a Massachusetts labor & employment attorney after graduation
Disclaimer: The above is the work product of the author only. The above is not legal advice.