Your Executive Life Blog

Unfortunately, in 2011, I have been doing more executive and professional separation/severance/release agreements than executive employment contracts – a sign of the times.  We have had an economic recovery that has not yet favorably affected job retention and growth.

People who have never been terminated either by being laid off or by being fired have no idea the shock, pain, embarrassment and humiliation that a terminated executive or professional undergoes.  I represent as many terminating employers as much as I represent terminated executives, so I have a perspective on the process, the issues, conditions, mechanics, and yes: the drama of it all.

I observe and note the following few points:

Reasonable Severance Packages Make Good Business Sense

Employers usually underestimate the destructive power that an angry, committed terminated employee can have on the morale, reputation, and resources of the organization.

What many employers fail to understand in not being reasonable in their severance offer is that the terminated, complaining employee may present a sympathetic image to a third-party fact finder in terms of discrimination charges concerning age, gender, religion, race, disability, etc.  Inchoate (and sometimes manufactured) discrimination  charges may rise to the surface for the first time when an employee feels she or he is not receiving a fair severance package.

The peeved employee may dig up bones of legal and regulatory liability of which the organization’s higher ups may not be aware.  The organization may have unintentionally spawned a whistle-blower.

Sense of Entitlement

Terminated employees usually overestimate what they are “entitled to” and what the company would be willing to pay in severance payments and benefits.  Unrealistic expectations lead to disappointment and deadlocked negotiations.

A company will have a severance payment number it deems economical or sometimes  a rigid severance calculation policy.  An employee must understand that, without an employment contract severance provision, the company, rightly or wrongly, believes that it is doing the employee “a favor” by voluntarily giving the employee severance when the employee is legally entitled to nothing. 

Advice of Counsel

Although separation agreements ordinarily admonish the employee to obtain legal counsel to review the separation agreement, too many employees drop the ball.  The employee may fail to obtain legal counsel.  The employee might tender the agreement to his attorney a couple of days before the drop-dead date for signature, leaving little time for a comprehensive legal review of the agreement and the employee’s legal situation, and insufficient time to negotiate with the
employer.

For some employees, the failure to obtain legal counsel is a cost-saving measure, which is being penny wise and pound foolish. For other employees, it is due to a lack of sophistication.  For still others, it is because of their utter demoralization resulting in passivity. Those employees represented by counsel more often negotiate better agreements than those who do not.

Non-solicitation Covenant Versus  Non-Compete Covenant

In terms of restrictive covenants, I believe the real meat and potatoes lie in the covenant not to solicit customers.  In my view, the non-solicitation covenant has more impact than a non-compete covenant.  This is so because 1) the non-compete covenant is more vulnerable to legal attack and 2) the non-solicitation covenant can be more specifically tailored to protecting the legitimate business interests of the company by identifying the company’s true existing customers with whom the departing employee would not have developed a relationship but for his employment with his company.

A well drafted non-solicitation covenant can make a non-compete covenant superfluous.

A judge who has problems with an unreasonable non-compete provision may carryover her skepticism and displeasure to other legitimate, reasonable restrictive covenants like non-solicitation.

No Pity Parties

Terminated executives ought to let themselves go through the grieving process for no more than four or five days, and then get over it. People get terminated all the time and the executive is not special for having been terminated. If you read the financial press, the shelf life of C-suite executives is getting shorter and shorter. Of course, losing one’s job is a very unpleasant feeling to say the least, but no one has a monopoly on adversity.

The sooner the executive begins working on his next great opportunity and not fixating on “what happened to me and why me,” the better.  At the risk of my using clichés, an executive’s determination to have a positive attitude in his job quest does make a huge difference in reaching a successful outcome.  One should burn no bridges with one’s old employer and get busy as a beaver building new bridges to a new employer.  An executive must race on to his next opportunity.

When an executive leaves his company because he resigns, he is fired, or he is downsized, the executive may get a separation agreement that includes severance payments, restrictive covenants and many other provisions.  The separation agreement may be also called a settlement agreement, a release agreement or a severance agreement.   One provision that is usually in separation agreements is a waiver and release provision that requires one or both parties to agree not to bring claims or law suits against the other. 

Waiver and Release Are Pretty Standard

Employers almost always have a waiver and release provision running in their favor in separation agreements.  The employer’s obtaining a waiver and release from the departing employee is usually the major incentive for the employer to agree to give the employee a severance payment.

Reciprocity

The departing executive should also insist upon having a provision that waives and releases the employer’s claims and causes of actions against the executive.  The waiver and release provisions should be reciprocal and the waiver and release should cover any existing or potential and known and unknown claims or causes of action.

Kinds of Claims Covered

The release provision in favor of the employer is ordinarily quite lengthy and includes every possible claim or cause of action that the employee could bring or initiate against the employer.    The employer’s  waiver and release provision covers violations concerning employment contracts, employee handbooks, Fair Labor Standards Act, the Americans with Disabilities Act, the Employee Retirement Income Security Act,  the  Family Medical Leave Act, Age Discrimination in Employment Act, state minimum wage acts, state wage payment and  collection acts,  and so forth.

Kinds of Persons & Entities Covered

The release of the employer will also specifically discharge every entity and everybody associated with employer such as its subsidiaries, affiliates, directors, officers, administrators, employees, agents, attorneys, successors, assigns and each person acting in the name of or on behalf of employer.

Global Application

The waiver and release provision can be made absolute and comprehensive as to private party causes of action, as opposed to any government initiated actions.  Typical language used to ensure comprehensive application of the  release can be something like the following: “It is the intention of the parties not to limit this release to claims arising out of or in the scope of Employee’s employment by Employer and to make this release as broad and as general as the law permits.” 

Non-Waivable Claims and Carve Outs

Each party should have a clear understanding of any limitations of, or carve outs in, the waiver and release.  If there are any limitations or carve outs, they should not be so vague and subjective  that the complaining party can arbitrarily and capriciously file a claim or law suit, thus defeating the purpose of the waiver and release.   There is something to be said for achieving finality of non-liability for the parties so that each of them can move on.  However if one party, for example the employer, feels strongly that certain possible claims cannot be waived because of unanticipated bad publicity or regulatory scrutiny or strong moral imperatives, then  that party should carve out the egregious claims,  like malfeasance.  Some claims cannot be legally be waived.

Typical language excluding non-waivable claims would be something like this: “Excluded from this waiver and release is any claim or right which cannot be waived by law, including all claims arising after the date of this Agreement and Employee’s worker’s compensation claim, the right to file a charge with or participate in an investigation conducted by an administrative agency, and the right to enforce this Agreement.”

So many waiver and release provisions have become boilerplate that many attorneys and clients do not scrutinize them as hard as they should.  Each separation agreement may have different circumstances and its waiver and release language must be viewed anew and crafted to meet the exigencies of the parties’ employment relationship.