Legal Insider: The Benefit of Severance Agreements for Employers and Employees

This is a sponsored column by attorneys John Berry and Kimberly Berry of Berry & Berry, PLLC, an employment and labor law firm located in Northern Virginia that specializes in federal employee, security clearance, retirement and private sector employee matters.

By Kimberly H. Berry, Esq.

In Virginia (and in many other jurisdictions) severance agreements are contracts that compensate an employee in exchange for them agreeing to leave their employment and waiving all claims against an employer.

Most employees in Virginia are considered “at will,” which means they can resign or be fired at any time by an employer. When employment ends, an employer may offer (or an employee may request) a severance package in exchange for the employee’s waiver of all rights to sue for discrimination, sexual harassment, whistleblower retaliation or other alleged violations of law by the employer.

Employers, in the absence of an employment contract which requires severance, generally have no obligation to provide employees severance pay. If severance pay is offered, an employer will offer the employee a Severance Agreement along with the proposed compensation.

Employer Severance Agreements

A Severance Agreement is just a contract between an employee and an employer that resolves all outstanding employment matters between them. A Severance Agreement may be offered to an employee who resigns or is terminated. Additionally, Severance Agreements can also be offered to employees who are laid off or who are facing retirement.

In order to be valid, a Severance Agreement must have consideration — i.e., something of value to which the employee is not already entitled. Employers are usually required to provide an employee time to consider the Severance Agreement before signing and advise them to consult with counsel before signing. An employee typically has a 21-day consideration period to accept an employer’s Severance Agreement unless the employee is over 40 years of age.

The Older Workers Benefit Protection Act (OWBPA) requires that an employer provide employees over 40 years of age with a 45-day consideration period and at least a 7-day revocation period.

Reasons for Severance Agreements

There are a number of reasons why a Severance Agreement may be proposed or agreed to by employers. These reasons can include the following examples, but many others exist:

• An employee is fired, for conduct or performance and the employer wants to avoid risk for potential claims against them by providing severance in exchange for a waiver of employee claims.
• An employer is looking to downsize their operations and seeks to avoid potential liability in the process by offering severance terms to a number of employees.
• An employee has been fired, no Severance Agreement was initially proposed by the employer but the employee approaches the employer seeking one.
• An employee wants to resign and seeks to initiate severance negotiations with the employer.

Common Severance Agreement Terms

Some of the terms to consider in a Settlement Agreement may include, but are certainly not limited to the following:

Severance Pay
Non-Disparagement
Retirement benefits
Re-employment possibilities
Tax consequences
The timing of severance payments
Confidentiality terms
Security clearance issues
Continuation of employment benefits
Rights to unemployment compensation
Waiver of Claims
Scope of non-competition
Preservation of trade secrets
References and reference letters
Recommendation letters (Positive and Neutral)
Applicable law
Consequences for violating the Severance Agreement

Severance Agreements will almost always include a General Release (Waiver) that stipulates the employee cannot sue his or her employer for wrongful termination or attempt to seek unemployment benefits.

Before an employee signs a Severance Agreement, he or she should consult with an attorney to discuss the rights that he or she may be waiving and the terms of the Severance Agreement.

Conclusion

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