SEPARATION AGREEMENTS: OBSERVATIONS FROM THE TRENCHES

BY G. A. FINCH

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 Race To Your Next Opportunitymore 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.

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