Should I Sign a Separation Agreement?

CMRS Law Employment Law

For Employees

Like the answer to most legal questions, it depends.  The legal reason your employer is offering you a separation (or severance) agreement is to secure a legal release of almost every legal claim you may have against it.  In exchange for a certain amount of severance pay, your employer achieves a sense of finality surrounding the termination in knowing that you cannot pursue something like a discrimination or sexual harassment claim against the company in the future.  Because you cannot pursue most legal claims after signing a separation agreement, if you feel the circumstances surrounding your termination were unlawful, or any other aspect of your employment was in violation of the law, it is important to discuss the separation agreement with an employment attorney.

Beyond that important release of legal claims, there are other issues to consider when offered a separation agreement, such as:

  • Are you being offered a payment beyond what you are already entitled to receive? If your employer wants an effective legal release, the severance payment they offer you should be above and beyond what you are already owed.
  • Are your vacation and sick days being paid out? If your employer has a policy of paying these days upon termination, they should be included.
  • Is the severance payment fair? Although there is not a law in Ohio requiring an employer to provide you severance pay upon termination, you may be able to negotiate the payment amount provided to you.
  • Do you clearly understand what you are receiving in exchange for your release of claims, when you are receiving it, and how you are to receive it? Again, these terms are up to your employer but may be negotiated.  Your severance payment may be spread out over several weeks or paid in one lump sum.

By working with an attorney, you obtain a piece of mind in knowing that you received a fair severance without leaving any legal claims on the table and clearly understand the benefits you are receiving.

For Employers

Separation agreements are equally beneficial for employers.  As stated above, the main benefit of offering a severance payment is that the employer receives a legal release of almost any legal claim the terminated employee could bring against the company (although it is also a gesture of good will to reward years of service), and therefore saves costly attorneys’ fees dealing with such claims in the future.

However, to operate as an effective legal release, the separation agreement must be carefully drafted.  For example, as stated above, the severance payment must be something above and beyond what the employee is already owed.  It cannot be past wages or vacation days that are normally paid upon termination.

Additionally, certain legal claims can only be waived with specific language and other legal claims cannot be waived at all.  The Age Discrimination in Employment Act (ADEA), for example, can only be waived with specific language, an employee must be given 21 days to review the agreement (sometimes longer), and has seven days to revoke the agreement after signature.  Additionally, you cannot require an employee to waive COBRA benefits, the ability to file a discrimination charge with the Equal Employment Opportunity Commission (EEOC) or Ohio Civil Rights Commission (although an employee can waive monetary compensation as a result of such a charge), unemployment compensation benefits, minimum wage or overtime claims under the Fair Labor Standards Act (FLSA), vested retirement benefits under ERISA, and legal claims that occur after the date of the separation agreement.

Finally, although an employer cannot prevent an employee from filing for unemployment compensation benefits, the frequency of the severance payment can affect the amount of unemployment compensation payable to an employee should the employee be entitled to those benefits.

Conclusion

As you can see, separation (or severance) agreements can be beneficial for both employees and employers as long as they are carefully drafted.  Whether you are an employer looking for guidance on providing an employee a separation agreement, or an employee that was recently provided a separation agreement, our attorneys can assist you with navigating this sometimes tricky, but important, agreement.

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