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Employment Separation Agreements

Whether you are running your own small business or working as an HR professional, you need to have a solid understanding of how changes in employment law and employee discrimination may impact you.

In a perfect world, business owners would always hire the right people, and there would never be a need for a separation agreement. In the real world, separation agreements are an unfortunate fact of life, and employers need to be aware of how they work and their potential implications.

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Severance Packages

There is an interesting relationship between separation agreements and severance pay, and that is a good place to start. While an employer is free to provide a departing employee with a severance package without an accompanying separation agreement, when a separation agreement is used, it is almost always accompanied by some sort of severance package.

Age Discrimination – ADEA

The use of a separation agreement is particularly important when the departing employee is 40 years of age or older. There are specific laws in place to protect older workers, the most notable of which is the Age Discrimination in Employment Act, or ADEA. Running afoul of the ADEA could be very costly for your business, and violating its provisions could result in an age discrimination lawsuit.

The Age Discrimination in Employment Act (ADEA) imposes a 21/7 rule, which basically means that the ADEA is only valid if the release of the worker is knowing and voluntary. In plain English, the 21/7 rule means that the departing worker has up to 21 days to review their separation agreement. The departing worker has the right to review the separation agreement with or without formal legal counsel – that is the 21 part of the 21/7 rule.

The 7 part of the 21/7 rule means that the departing employee has an additional 7 days to revoke their signature on the separation agreement. That additional 7 day period is in addition to the 21 day review period, giving the separated worker a total of 28 days to make a final decision.

Depending on the nature of the separation and the circumstances involved, the departing worker may have additional rights not covered by the 21/7 rule of the ADEA. What that means to employers and business owners is that workers who are 40 years of age and older enjoy certain rights that may not be afforded their younger counterparts.

What that also means is that employers need to give additional consideration to their workers over 40, especially when an involuntary separation is warranted. Whether the separation is the result of an overall force reduction or related to the individual employee only, following the strictures of the ADEA is absolutely essential, and violating those regulations could result in a costly lawsuit and lengthy litigation.

Departing workers over the age of 40 may require additional consideration, but care should be used whenever a worker is asked to leave. Even if the worker in question is under the age of 40, the goal of the separation agreement and severance package is to release the employer from both known and unknown claims. In other words, the employer uses the separation agreement and/or severance package to ensure that the departing worker does not file a complaint with the government over the separation or file a lawsuit against their former employer.

Seeking Employment With or Marketing Information to Competitors

Another important goal of the separation agreement and severance package is to stop the departing employer from marketing business information to a competitor. This is a key consideration in many lines of business, especially market segments where proprietary information is commonplace and competition is stiff. Depending on the nature of the separation agreement, the departing worker may even be prohibited from seeking employment with a competitor.

The separation agreement is a key document in the world of employment law, and it is important for employers to think about what they want that document to do and why it is needed. When drawing up a separation agreement, an employment law expert will ask the client why they think the document is needed and what they hope to achieve through its use.

Is the separation agreement intended to reward the departing worker for their tenure and dedication to the company? Is the goal to prevent a future lawsuit or age discrimination claim? Does the company wish to prevent the spread of confidential or proprietary information to a competitor? The answers to these questions will help the employer, and the employment law expert, draft an effective separation agreement.

Employee Separations are Always Difficult

Whether you are a human resources executive or a small business owner, the decision to let a worker go is never an easy one. Whether the decision is precipitated by a drop in business and the need to cut costs or the result of poor attendance or a bad attitude, employee separations are always difficult. Business owners and HR executives have a lot of questions when terminating workers, from whether or not to offer a severance package and how much they should offer to how to present the offer and the best way to negotiate the terms.

Non-compete Clause

In the case of proprietary or confidential information, employers will need to decide if the separation agreement they offer should be accompanied by a non-compete clause and agreement to safeguard the confidentiality of company information. Additional considerations when drafting a separation agreement may include information about protected classes, i.e. age, sex, race and disability. All of these factors should be taken into consideration when drafting a separation agreement, but further refinement often depends on the employee and the nature of the separation.

Special care must be taken if the worker in question has previously threatened a lawsuit or expressed interest in discrimination law. Additional consideration is also in order for workers who may be tempted to jump over to a competitor and take company secrets with them.

Offering a handsome severance package, along with a well drafted separation agreement, can protect employers from potential lawsuits and help them safeguard their proprietary information. Dealing with employment separation is never easy, but knowing the law and having a basic understanding of separation agreements and how they work can help a lot.

Call our Employment Law team at (480) 464-1111 to discuss your case today.

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