Severance and Release Agreements with Terminated Employees - Separate Agreements at Start and End of Transition Period? (United States)

This Wisdom of the Crowd (ACC member discussion) discusses, in a US context, whether to ask a terminated employee to sign a separation letter ahead of termination and another agreement for severance and release at the end of the transition period, or to combine both items in one document. This resource was compiled from questions and responses posted on the forum of the Employment & Labor Law ACC Network. (Permission was received from the ACC members quoted below prior to publishing their eGroup Comments in this Wisdom of the Crowd resource.)

Question: We will be releasing an individual from employment shortly. He is a capable employee but is not a good fit. We will be requesting about a month of transition time from him. In the past, I have prepared a single document that provides the employee's separation will be at a future date. My company's past practice has been to have 2 documents: one regarding short-term employment and another at the end regarding severance/release. I understand the logic behind having 2 documents: hard to release future claims. However, I feel that it added stress for the employee to have 2 legal documents to review. In light of that, I was thinking of having only 1 document, but then at the end have him sign a re-affirmation of his promises, including the release. I wonder what the collective thoughts are on the subject.

Wisdom of the Crowd:

Response #1:

I have worked through the same issue, and considered that approach. The problem I saw was there would be no consideration for the later re-affirmation. The final release, for claims arising after signing the first release, may not be enforceable. Also, our separation agreement includes terms that only make sense on or after the last day. For example, I have returned all employer property, reported any on-the-job injuries, and received all compensation due, etc.

What I have done is to provide the final agreement well in advance of the termination date, with a provision that it cannot be signed until after employment has terminated. For employees over 40, who have to be given the option of a 21-day period to review before signing, that also starts the review period clock running.¹

 

Response #2:

For a period of notice before work ceases of 1 or even 2 months, I just give out a standard agreement, particularly if it is an over-40 situation where they get 21-days to review anyway. For a situation where the termination date is farther out in the future, then I would have the employee sign a resignation letter locking in the term date (and the severance pay) now, and then executing the full release document at the end.²

 

Response #3:

I have taken the same approach as mentioned in Response #1, and it has been effective, although I designate that it must be signed on the last day of employment (unless that has not been 21 days yet).³

 

Response #4:

I have handled this in a variety of ways. If you are immediately releasing the employee from work responsibilities and merely continuing his/her employment through a particular date, I do not think that there is much legal risk in immediately giving them the actual agreement that releases all claims arising out of their employment and letting them sign it right away, since it is highly unlikely that any new claims would accrue between the date that you let them stop working and the date that you terminate employment. However, if you are entering into an arrangement pursuant to which you negotiate a departure such that someone works for another two months and then leaves, you are more exposed. In those situations, I include as part of the original settlement agreement an Attachment A that is called a Reaffirmation of Waiver and Release. The employee is required to sign the agreement immediately (which has a release) and to sign the Attachment A (Reaffirmation) on the Termination Date that reaffirms the waiver up to the Termination Date. I am not concerned about consideration. The consideration is the same consideration that supports the main agreement. This is merely one of the conditions of the main agreement. If the employee is 40 or older you need to comply with the age discrimination requirements regarding review and revocation of the waiver in the reaffirmation as well.⁴

 

Response #5:

In this situation, we will have a release up to the last day of work and then when the transition or consulting period is over, we exchange a "success payment" for an additional release covering the period of transition or consulting.⁵

 

Response #6:

The only drawback that I note to this approach (of having the person work to the end of the transition period without any signed waiver) is that you do not have any release signed. Therefore, the employee could renege on the deal and re-assert any discrimination or other claims that s/he may have.⁶

 

¹Ian Sweedler, Associate General Counsel, Gordon & Betty Moore Fdn. (Employment and Labor Law, Aug 20, 2015).

²Kevin Chapman, Assistant General Counsel, Dow Jones, Princeton, New Jersey (Employment and Labor Law, Aug 21, 2015).

³Kristin Page-Iverson, Assistant General Counsel, Tucson Electric Power Company (Employment and Labor Law, Aug 21, 2015).

⁴Marjory Robertson, AVP & Senior Counsel, Sun Life Financial (Employment and Labor Law, Aug 21, 2015).

⁵Mia Bitterman, General Counsel, ABCO Refrigeration Supply Corp. (Employment and Labor Law, Aug 21, 2015).

⁶Marjory Robertson, AVP & Senior Counsel, Sun Life Financial (Employment and Labor Law, Aug 24, 2015).