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Welcome to The JoyPowered® Workspace Podcast, where we talk about embracing joy in the workspace. I’m JoDee Curtis, owner of Purple Ink, an HR consulting firm, and with me is my friend and co-host, Susan White, owner of Susan Tinder White Consulting. Our topic today is employee separation agreements – what employers and employees need to know. Employers may choose to offer severance pay to employees who are terminated, either voluntary or involuntary. I personally have initiated many of these agreements, and I recommend them to many of our clients. What about you, Susan? Have you had much experience with these?
Yes, I’d have to say, sadly, I have, especially when I worked for a large organization. We routinely did right sizing or layoffs or downsizings, usually simultaneous with ramping up in different parts of the organization. So we were always in the business of making sure that as we were exiting employees, if it was by no fault of their own, we certainly offered separation agreements. And there was just a handful, I would say, over the years, of special types of exit packages for really unique circumstances that were not a result of layoffs.
Yeah. I actually, ironically, knowing that we were going to be recording this podcast today, I just had a client reach out to me two days ago, who had a difficult situation for her. She’d had a long term employee who had really helped her build her business and do a lot of wonderful things, but were just at a point and their relationship where it wasn’t working for many reasons, and the team was struggling with this individual, and she wanted to let her go. Quite honestly, it was time, based on what she told me, and she was just struggling to make it happen and to think about how she could help the employee, but how she could make it easier for the company, as well, too. And so I recommended a severance agreement. I also recommended that she call her employment attorney to help them do it, not…
We don’t draft those documents. And I could just feel the monkey coming off her back, because she felt such relief in…in having a plan, really, of sorts. And then she emailed me, actually, late last night to say she had delivered it, she had the conversation, and just having that…that severance agreement was an opportunity for both of them to feel better about it.
I like that. I kind of think of it as an amicable divorce in some ways.
You want it…you both…you fell in love for a reason, and you had a good relationship, we hope. And then sometimes it just comes to that point where we might be better – you’ll be better, we’ll be better – if we go our separate ways. But why not put together a separation agreement so everybody understands that, you know, you know what you get, you’re walking away with, what you’re leaving on the table, and hopefully you both feel good about it.
Right, exactly. So there are several reasons for organizations or employers to offer them. And let’s go through a few of these, Susan.
First one, it can soften the blow for those being terminated so it ends the relationship on a positive note.
Yeah, exactly what my client did this week. It can also soften the blow for those not being terminated. I think a lot of people don’t think about that, but for the employees who stay, who maybe it’s difficult for them as well, they can appreciate that the company is taking care of those leaving and that creates some goodwill for them.
I think that’s right, because they watch to see how do you treat people as they leave.
And if you don’t do a good job, they’re thinking, “why should I stay?”. So, I think very, very smart point. Third reason, the company may avoid future lawsuits by having the employee sign a release in exchange for the severance, because they are waiving the right to sue you for anything that’s occurred by accepting whatever it is you’re offering in that separation agreement.
Exactly. And a company might use the severance agreement as a way to entice an employee to stay on for a certain period of time, so…which sounds interesting, right? Are you letting them go or trying to keep them? But, you know, if there’s a buyout, that company’s being sold, or other certain situations, you might need to terminate the person but also get them to stay on for a certain period of time. So offering them a severance agreement could entice them to stay and do the work and not seek other job opportunities right away.
It can be a great retention device, that people know they need to stay until a date certain before they’re gonna get that severance, that could be the carrot that keeps them through whatever transition that organization is facing. So it makes sense, right?
On the flip side, it can also be positive where the employee leaving the organization. So we have a few reasons here. Number one, they they have continued pay for a period of time. Usually that’s based on years of service or position, but doesn’t have to be.
Sure. Health insurance may be extended if allowed, or the employer may pay COBRA premiums for a period of time.
Yeah. Which is nice. The employer may agree not to challenge unemployment benefits as a part of the agreement.
And finally, the employee may receive other benefits as part of the agreement, as well.
A good example of that might be outplacement. I see a lot of organizations write that in their separation agreement so the individual hopefully will have some resources that’s going to help them get that next job.
Now, a word from our sponsors.
The JoyPowered® Workspace Podcast is sponsored by Purple Ink. Purple Ink’s customized HR services will help you make your workspace JoyPowered®. Whether you’re looking for help with recruiting, compliance, or leadership training, we listen to what you need and tailor our solutions to you. What we won’t change? Our positive approach. Check out purpleinkllc.com – that’s purple I-N-K L-L-C dot com – to find out how we can help your business. In all of these instances, we recommend using legal counsel to assist you with these agreements, which is why our guest today is an employment attorney.
One of our favorite employment attorneys.
That’s right, Michael Blickman. Michael has practiced law with Ice Miller LLP for more than four decades, he’s concentrated on employment issues. And Ice Miller has offices in Indianapolis, Chicago, New York, Columbus, Ohio, Philadelphia and Washington, DC. Over the years, Michael has worked with a variety of clients, large and small, local and global. Michael, we are so happy to have you join us on the JoyPowered® Workspace today.
Thank you for having me on the show today. I appreciate it.
Michael, what are some core provisions of the agreement that employers want to make sure they’ve included?
The first thing that I would be thinking about is who needs to be released. For example, if you’re working for a company that is owned by a parent corporation, if I’m that parent corporation, I want to make sure that I’m including that in the list of release parties. I would also include insurance companies who might be on the hook for for a claim by the former employee. So the first thing I’m doing is defining who the released parties are. Okay. And then what I’m doing is describing what claims are being released. And that tends to be a long laundry list of laws, both state laws, federal laws, what are called common law tort claims, any other claims that are relevant, we list all those in the…in that portion of the agreement. The next portion of an agreement will typically provide for the separation benefit. And I would say here, an employer should be thinking about should it be a lump sum benefit or should it be an installment payment benefit if we’re talking about money. And I often encourage installment payments, because it’s one of those incentives that employees have to comply with the rest of the agreement. So that if you pay somebody a lump sum upfront, and they…and there’s, let’s say, a non-disparagement confidentiality provision, they might be more inclined, because there’s nothing…because all they really risk is losing the money they’ve already been paid. But if they risk getting the next 10 payments, 10 installment payments, then it’s a lot. It’s a lot more important for them. I would be conscious, too, if I’m…whether I’m paying someone their accrued PTO and vacation. And this is a big trap for employers in some states that require you to pay PTO or vacation on termination. And you should be explicit about whether an employee is going to get that or not. And a lot of times an employer will say that the individual severance amount is inclusive of their PTO. And so that…it’s a…it’s an option to think about if you’re going to offer somebody a good amount of severance pay. That’s something you can do. The trap there, though, is that in most states you have to pay PTO or vacation with a final paycheck, or in states that have a pay on termination law, the day they get terminated. So you have to be extremely cautious about about, you know, complying with with state law there. Medical benefits is another area. And I think it’s really helpful to employees to understand when their health insurance coverage stops and understand that if they have a right, they will have a right under COBRA to continue health benefits, that they will be hearing from whoever the administrator is or from the employer on it. And also there…there are some times, there…there are some occasions when an employer will provide a COBRA benefit for departing employees. And I do want to throw a caution in here because ERISA has non-discrimination provisions, and you have to be aware that if you’re going to offer this to an employee, provide them continuing coverage under the health plan, under COBRA, you’ve got to be talking to your attorney about whether I’ve now created a discrimination issue under…under COBRA. Another piece in the agreement that I would think about including would relate to how the agreement dovetails with an employment agreement, which might include options or restricted stock grants. And I want to be sure that I explain what that individual’s rights are under whatever operating agreement or other corporate document I might have. I’ve talked about non-disparagement and confidentiality provisions. Those are definitely provisions that I would think about including. I see them in most agreements. I do sometimes get employers that ask me, “Well, how easy is it to enforce a non-disparagement provision?” I think it is…. It’s easy if you have the facts, if you have the evidence. I also know, though, that it’s extremely expensive to go to court these days. But it doesn’t mean that you’re going to court for every violation. It might just be that you’re sending the employee a letter that advises them that they violated the agreement and because of that, we now require you to pay us everything that we paid you. And…and I’m not saying that that will result in a lawsuit, because, again, it’s a cost benefit analysis for an employer. But it’s a powerful tool to use. And that relates to the violation provision, which is another area of the contract, of the release agreement, that I would think about drafting very carefully. Because I do like to include what are called clawback provisions that are lawful in most states, allowing the employer to essentially demand that the employee return the money or whatever the consideration was – it could be the value of the consideration if it was a COBRA benefit, for example – and that’s also a really great disincentive for someone to violate the agreement. So you…you include a clawback provision with interest. You also would would want to think about including an attorney’s fee provision, so that if if the agreement is going to be enforced by the employer, that the employee would pay attorneys’ fees. Now, on the employee side, they might say, “Well, shouldn’t I have the same…shouldn’t I have the same protection? What about non-disparagement? Shouldn’t you, my former employer, promise me that you’ll never disparage me?” Well, that’s a tough thing for most companies to promise, because you’re binding every one who acts on behalf of the company now, so think about all your supervisors, managers, executives, you’re binding all of them to a contract by saying that. So my…my default in that case, generally, if…if it becomes a controversial issue, and the employer feels as though it needs to include in order to get the agreement signed, is to say that we won’t authorize any one to disparage you. Or to be really specific about it on job references, which people are naturally concerned about if they’re being terminated without…for cause. And state that in response to a request for a reference or request for information about you, that we will give neutral information, name…job title, if you want us to give the salary or wage rate, we will, so forth. But…but to be specific about that. I don’t think there’s anything wrong with an employee asking for that, but some employers resist doing that because they really don’t want to take on that responsibility. And think about it. I mean, they’re taking on a responsibility, not just today for today’s HR Director, or VP of HR, but whoever that person’s successor is, who may not actually know that that was a contract entered into by their company when they joined, because how many of the HR people are going back into former employee files and looking at every release agreement. They’re not. They’re not doing that.
No way. No way.
So, non-solicitation clauses – not soliciting your employees for a reasonable period of time, not soliciting your customers, not soliciting investor kind of company that relies on outside capital that you’ve created relationships with. And then there are…there’s a general confidentiality provision that I like to include that relates to trade secrets and confidential information, ensuring that the employee returned all property to the employer. Those sorts of representations are really, really useful in an agreement. I guess the last thing I would think about is cooperation, because an employee is leaving. It doesn’t matter how bad you think they were, they have knowledge and they can help. And you may have questions, and the last thing you want is to call that employee because you don’t know where that file is, or you don’t know where a password is to get into whatever the application is, and they say, “Well, I don’t have any obligation whatsoever to cooperate with you.” So it is very helpful to have a cooperation clause in an agreement, which is then enforced by the violation provision that says that you pay back the money if you don’t cooperate with us. And, you know what, most employees who are leaving have absolutely no problem answering questions after they leave. They don’t want…they don’t want to burn that bridge.
So helpful. So helpful.
Susan and I discussed at the top of the podcast why an employer and an employee might want to sign an agreement. Why might they not want to sign one?
So we’re talking about a terminating employee, or one who’s already been terminated. Let’s talk about the employee side first. On the employee side, the first thing that I would ask him or her is “Do you understand the agreement?”. These are legal documents, and most employees have no familiarity at all with reading a contract. That’s not true of high-level management or executive employees, but most employees, this is the first time they’ve ever looked at this. And depending on how much time they’ve been given to consider it, they really need to be careful about it, because they’re going to be bound by a contract that would be enforceable in court. And the other reason for an employee not to sign it would be that if he or she believes that they want to file some kind of a claim against the employer. And if there’s a discrimination claim, if there’s a breach of contract claim, any other kind of claim, you can bet that all of those have been released by the document, and so by signing a release agreement, they’re waiving their right to go to court. And I think that’s probably the biggest reason why people don’t don’t sign them. There may be another reason that relates to how much consideration they’re given, because the agreements will contain a separate amount generally, or some of the…some other consideration. And so they may decide it’s just not worth it. I had a case a few weeks ago where an employee had been offered two weeks of pay to sign away all of their rights. The employee simply wasn’t comfortable doing that based on…for two weeks of pay. And that’s an individual choice, right? So a person just has to make that decision. On the employer side, I think that employers have to be cautious about providing release agreements or severance offers to employees who terminate because of a good reason, whether that’s conduct or performance reasons, because…it’s not that they’re creating a legal precedent by offering an agreement to one of those…one of those individuals, but what does that say about the culture of the company? What does that say to every other employee who saw their coworker perform badly, but then was offered something on their way out? And so I think you just have to consider all of those who are affected, not just the individual employee. But by and large, employers who are terminating employees are interested in getting released just because of the legal landscape now, which gives former employees so many rights. I mean, they’re…and they’re just expanding, they’re not contracting. So I think it is generally an employer’s interest to get one.
Michael, do you see many times where the employee doesn’t sign it? I know I would guess, for me, I maybe have been on the on the employer side of maybe 100 of them, and one time I had an employee who didn’t sign it.
One time out of 100?
That’s pretty…that’s a…that’s a…I would not be surprised at that percentage, one out of 100. And it may be even less than that. I think most times, employees sign them, and I think they sign them because they need the money. Most often they need…they need that consideration. And, by the way, I’ve been talking about money, but the consideration doesn’t have to be money. It might be something else of value to them – changing a termination to a resignation or guaranteeing some some other benefit to them. So, no, but I will…. I have one instance where I was representing employees and I…my practice is generally on the management side, but I was representing four executives of an insurance company who were leaving because their insurance company was being bought out by a larger entity. And each of them was offered an extraordinary amount, right, of money. I mean, these…you know, this is in the seven figures. Well, three of them were happy with it, they signed, no problem. The one decided that he felt that he should get more than the others for whatever reason. And after some warnings by me that, you know, if you push them too hard, here’s what’s gonna…. Well, anyway, he decided not to sign.
Woah. Was that a good decision or a bad decision? Yeah.
Right. So he thought he was a master negotiator, went back to the company, said, “I deserve more.” You know what they did? They said, “Sorry, we’re withdrawing the agreement, you get nothing.”
I…I just, every time I represent an executive, I have to warn them, I usually tell this story, because I have to tell them, look, if you push too hard, if you try to negotiate for a lot more and it’s not reasonable, the company is under no obligation to provide this to you unless there is a contract of employment that says that you get severance. So, you know, you gotta…you’ve got to be careful. But getting back to, you know, the question is do most people sign – they do. They they take the money and run, basically, and go on and they live happy lives. So that’s…that’s where it usually ends up.
That’s, I think, very interesting. In my past, when I’d worked for a large corporation and we just routinely did layoffs as just part of our normal operating model, and our severance agreements were just very standard. And so people would try to negotiate, and we’re like, “Gosh, we’re sorry, you know, this is all we do. You know, there’s…there’s nothing else.” It’s those one-off ones where we were trying to exit gracefully with somebody and it wasn’t a performance problem and it wasn’t really a layoff, it’s – maybe we felt like they had peaked in their career and there was somebody else we wanted to bring in or whatever the situation was – those are the ones that got really kind of woolly, because there was negotiation happening.
How often do organizations, would you say, negotiate separation agreements?
I would say not very often. And it may be more typical in a one-off situation where you’re terminating, say, a long term employee who’s given, you know, great value to the company, and that employee has some particular needs and so he or she, as you said, you know, may…may ask for something more. But it’s really not typical where you have a layoff or a reduction in force, because if you do something for one person, then you should expect that, despite the fact that it contains a confidentiality provision, everyone will find out that that’s what you did and so there’ll be a never ending stream of people running to the HR office asking for that. But it does happen now and then that someone goes through the agreement and says, “Look, you know, I’d like a bit more money,” or…or extended COBRA benefits, or some outplacement assistance, which can be really helpful to people. And if it’s not that costly to a company, and, again, looking at all the circumstances and the impact that it’s going to have on others who still work there and so forth, I’m never surprised that someone comes back. And frankly, I would tell an employee that if you don’t ask for it, you’re definitely not going to get it. And so…
…what, you know, what’s the worst that could happen? Well, you go back to my insurance company case, well, the worst that could happen is that they don’t like you and they decide that they’re going to withdraw the agreement. That’s a terrible result. And so you run that risk, but I don’t see that happening very often. When people go back, typically, it’s what you said, Susan, the…the company says, “No, this is what we are comfortable offering. We’ve thought a lot about it. We think it’s an appropriate amount. It’s consistent with our practice.” And so I don’t see a lot of companies modifying their sort of template agreements.
Makes sense. You had mentioned it probably does not make sense to offer a separation agreement or payment if you’re getting rid of them for cause. Is there any other reason why employer might want to pause and really think through, do I want to offer a separation agreement in this situation? Is there any other red flags that they should stop and pause about?
Other than the – and if I had air quotes to use, you know, I could show your listeners – but, you know, other than the “precedent,” sort of, that you’re creating in doing it, another reason not to do it might be that you simply are not able to meet the employee’s needs. Right? And there’s…there’s no way to do it, or that you just don’t want to go down the road of offering severance agreements. There are plenty of companies that simply terminate employees and nothing is offered to them. And, you know, we’re…our conversation is not really focused on a union environment, but in a…in a labor union environment, it’s not typical to be offering severance pay to people on termination, because you have a right under the collective bargaining agreement to terminate for cause. The remedy there for people is to file a grievance and go to arbitration with the union…union support, so that…that would not be a reason to do it. But otherwise, I think that employers should be, if they’re going to give anything of value to an employee – departing employee – that that person is not already entitled to, I encourage them to think about a separation agreement. And there are times when clients don’t think about that. They make a promise to someone that I’ll, you know, continue your pay for a month, or keep you on payroll for six months, for a year, whatever…whatever it is, or I’ll give you a consulting agreement. Well, you’ve just created an oral contract with someone, and oral contracts are enforceable in almost every state, and so you have to be careful about that. So, you know, I think it’s a good idea to document the agreement that you have with a departing employee. And you can do that so easily with a separation agreement. You know, there are some traps that we probably don’t have enough time to talk about. But if you are careful about how they’re drafted, they’re…they’re enforceable. And it gives protection not just to the employer, but also to the employee who can now rely on a contract to get whatever those termination benefits are.
And Michael, you say they’re enforceable. But are they bulletproof?
Well, I don’t think any contract is bulletproof. And I do think that there are companies that think they are. And it’s a really good question, because if an employee signs one of these agreements and then claims later that they signed it under duress or they were coerced into signing it, then it could be a problem in enforcing it. So they’re not bulletproof. Or if you don’t comply with all the – I just called them traps for the unwary employer – but if you don’t comply with those, then the law could hold that the entire document is not enforceable. And so, again, that’s another reason for an employer to be to be cautious about it. So no, they’re not bulletproof.
But they are enforceable in court.
Yes, they are. It’s rare to have to go to court to enforce them, but they are enforceable. They’re a legal contract, and so courts in every state will observe that there is freedom to contract, and the court will assume that an employee understood the document, and it would be the employee’s burden to demonstrate that there was something wrong with a document or that he or she was coerced or signed it under duress. So they are enforceable. I think employers have to be careful about what they include in agreements, because some of the provisions that employers sometimes want us to include will not be enforceable or need to be written very carefully in order to enforce them in court. So when we talk about enforceability of the agreement, the most important part of that is the release of claims, because companies are worried about getting sued by former employees. But there are other parts of an agreement that may show up. Like, a non-compete could be part of a release agreement or a termination agreement, an agreement not to list solicit the company’s customers or business partners or investors. It’s not unusual to see those in agreements now. We have some recent case law that relates to liquidated damages. I don’t know whether your listeners will be familiar with that. But there are some contracts that provide that for a violation of this agreement, because the amount of damages would be difficult to calculate, we will agree in the document that the employee has to pay X amount of money for a violation. Well, some courts hold liquidated damage clauses to be penalties and not enforceable. So you have to be careful about how those are drafted, as well.
What might be an example of that?
Of a liquidated damage provision?
Let’s say that your document provides that during the one year after termination, you’re not permitted – you, the former employee are not permitted – to solicit any of my employees to join a new employer. And if you do that, and they leave as a result of that – there’s a causation piece there – but if they leave as a result of you soliciting them, then you’re going to pay the company – I’m just pulling a number out of the air – $25,000 as a reflection of the value that the company lost. Then the liquidated damage clause can be reviewed by a court, which will look at does that liquidated damage amount bear a reasonable relationship to what was lost by the employer, and if it does not, then it’s a penalty. And the law in basically every state prohibits employers or…or one party to a contract from imposing a penalty on another party. So you have to be extremely careful about that. I’ve also seen liquidated damage clauses for just outright violations of a contract. Let’s say the former employee violates the confidentiality provision or the non-disparagement provision, which are typical provisions in a termination agreement, then you have to pay us $5,000 for every violation. I don’t want to stick my neck out and say that a court in every case is going to enforce that, because I don’t know that that reflects the value that is lost to the company due to an employee – former employee – disparaging them. But it’s not inappropriate to think about that, because the amount of damages is very difficult to quantify when you get disparaged by a former employee, right, or there’s a breach of confidentiality, I mean, it’s extremely difficult to prove. So it becomes an easier way to handle it. And really, the value of a liquidated damage clause isn’t so much “Well, we can go to court, we can file a complaint and enforce this,” it’s that it creates this really important disincentive for a former employee to violate the agreement, because they see, “here’s the amount of money I’m going to have to pay if I violate this.” So it’s a very powerful tool that employers can use. I don’t see a lot of employers using them, because I think they believe that they’re a little one-sided and they’re also concerned about the tone of an agreement, in many cases. But I would say that if you’ve got an employee, and you’re worried about a violation, that it’s a reasonable consideration to include in the agree…in the agreement. Again, this is a very state-specific issue. So I know you’ve got listeners in many different states, and they would be well advised to talk to counsel who practice in those states to understand what the contours of the law would be.
Make sense. You know, it’s interesting, when we think about someone signing a separation agreement, I know some clients of mine, they don’t want to get into it, because they’re afraid “Oh, no, it’s going to look like we, as a company, are trying to, you know, harm them on the way out, we’re gonna make them waive all their rights,” and so on and so forth. Honestly, I love, from the protection for the employee and for the employer, to have it all in writing, kind of like what you said, Michael, that you…. Everything is clear, it’s on the table. And I also like to call it, you know, “We have a package for you.” We know that time has ended and for whatever reason, we’ve got a package. For some reason, using that terminology gets people feeling “Yeah, that’s right. I’d like to leave with a package.” So for any listener that helps, use it.
Yeah, I totally agree, Susan, I think it’s a…it’s a great thing on both sides. I do sometimes get a little bit of pushback from companies that have not used these agreements very often. They’ll say, “Wait a minute, why am I asking for a release? I didn’t do anything wrong. Aren’t I planting an idea in this individual’s head that they might not have already had?” It’s sort of like a conspiracy theory in a way. You know, “Am I suggesting to them that where there’s smoke, there’s fire, so if I’m offering this to them, I must have done something wrong?” Well, I think there’s a little truth to that. I think that human nature works in a way that some employees think that if they’re offered something that they didn’t already have coming to them, they’re a little distrustful of the employer’s motives, and I think that there could be people who believe that the employer is trying to pull one over on them or take advantage of them. But that’s not typically the case. Usually, it’s what you were just describing, Susan, it’s an employer that wants to help somebody on their way out. It’s too bad that it didn’t work out, but sometimes these things don’t, right? And you see that often, and your listeners see it often. You know, you spend a lot of time on the hiring side and the intake side, but sometimes you just…you really don’t know until somebody is on the job, right? And when it doesn’t work out, it doesn’t mean that they’re…they’re a bad person, and they have a family to support, they have bills they have to pay, and so offering them a little bit of pay on the way out and getting a release for it so that you don’t have to worry about this…all of these laws that people can use to sue. That’s a decent thing to do. And it’s I think it’s a prudent business decision for people to make. So I…I’m a supporter of, you know, thinking about those…the package that you can offer someone on the way out. I also…also think, again, it goes back to thinking about the people who are still there, right, which some employers forget about. “Really, you just terminated a 20-year employee, and now they’re basically on the street. They haven’t put a resume together for 20 years,” you know, “How can you do that?” Well, that has a huge impact on the goodwill that an employer tries to create every day with its employees. So it’s another it’s another good reason to think about doing a package for people.
Very true. Now, Michael, are there any employees’ rights that cannot be released?
In a termination document, the rights that cannot be legally waived, although you could include them in a laundry list of things that are waived and released, would be…An unemployment claim. A worker’s compensation claim in most states is not waivable. The Family Medical Leave Act used to be interpreted in a way that an employer would have to go to court in order to have an enforceable release agreement. Now, the FMLA regulations have changed that and allow an employer to obtain a prospective, so a future claim, which really doesn’t come into play very often with any terminating employee, but you are allowed to get a release for past conduct. And then there is a major exception for Fair Labor Standards Act claims – wage hour overtime, minimum wage claims. You can include a statement that an individual is releasing claims under the Fair Labor Standards Act, but it is unlikely to be enforceable if there is an issue later, because the Fair Labor Standards Act provides that a court has to approve the ultimate resolution, or you have to have the Department of Labor – federal Department of Labor – involved in it. So I see…I see those, as I said, I see those in the laundry list of laws in the release portion of a document, but employers should be cautioned about that.
And Michael, are there federal or state laws that regulate what can and cannot be included in a severance agreement?
There are a number of states…this is a trend, I would say, that people should be on the lookout for this. More and more states are adopting laws that define what cannot be included in an agreement or that must be included if you’re going to, for example, insert a confidentiality provision. Illinois a good example. There’s a fairly new law called the Workplace Transparency Act that requires different language for employees in that state. California has a provision that requires special language in a release agreement. And there there are other states…I think there are just a just a handful, but they’re not the likely suspects that maybe we would we would suspect. California, yes, for sure. But Kansas, Missouri, I think that Minnesota…Minnesota has a law that requires a certain time period and certain language to go into an agreement. New York. And so, again, you have…you have to be careful about this. You have to make sure that you’re compliant. And then on the federal side, I’m not aware of any laws that state that this is what you must include, other than employers who are obtaining releases for age discrimination claims. So a claim under the Age Discrimination in Employment Act, and you’re covered by that law if you have 20 or more employees – that’s part time, full time, whatever – so if you…if you’re covered by the – ADEA is the acronym we use for the age act – and the person is over 40…40 or older, you have to give that person 21 days to consider the document, and then seven days to revoke. And if you’re doing a group termination, for example, a reduction in force, you have to give each individual 45 days to consider the document, also seven days to revoke. But in the case of a reduction or a group termination, you then have to include what I sometimes call a “blueprint” for an age discrimination case. And…and that is a whole lot of information that has to be included with the document that tells the employee the job titles and ages of every classification in what is referred to as the decisional unit that was considered by the employer. This is a big trap for employers who don’t know this or who weren’t advised this by their counsel, because the release will be unenforceable under the age law, and it may actually cause…depending on the court, the court may decide they want to throw out the entire release document. So you have to be extremely cautious about that. I get some pushback from employers, too, that are not familiar with that, because they say “You mean I have to give age of ev…. I have to give my age if I was considered for…?” Yes, you do. I’m sorry, but that’s what the law says.
And when we do that, we don’t name the individual, but we name the job, and so the people who receive it say, “Well, that must be Mary. I didn’t know Harry was 61.” I mean, it’s very funny, because they can figure out who the people are.
They know exactly who you’re talking about. Yes. And then, you know, what do you do? It’s a kind of an interesting thing that the Congress decided to…to adopt in the rule, because what do you do if you’re an employer of 3,000…10,000…and you decide to look across the board at all of your employees because you have to reduce their numbers by 10%? What does that exhibit look like? Well, I think that exhibit looks like a thumb drive. I don’t think you’re giving them 1,000 pages showing job titles and ages, I think you’re giving it to them electronically, but you’re giving it to them. And you…you cannot allow the time they have to consider the agreement to begin until they get everything that they’re entitled to. So, think about this, too, I mean, in a…because I know that, you know, a lot of the listeners will do reductions in force and some of the…one of the biggest problems is, “Well, how do we do this with people? I mean, who do we bring in first? Because if I bring the first person in, then they’re going to tell Mary, and they’re going to tell John, and they’re gonna…” and suddenly word gets out that if you get called into JoDee’s or Susan’s office, here’s what’s going to happen to you. And so the way that I suggest people handle that is to…is to not give the separation agreement to folks until a later time, or if you’re going to give it to an employee when they come in, that you not give them that exhibit and just tell them that “I’m not giving you the entire agreement, because here’s the other piece of it, and I’ll be getting that to you at a later time,” like later today, for example. And then…then you can start the time, because I think it’s a bad thing for an employee to go back…which happens all the time, as you know, they go back to their desk, they start cleaning out, they do the perp walk with somebody from security, and then it’s a mess. It’s a complete employee relations nightmare.
That’s great advice, I think.
Michael, do you have advice for employers who might be listening that like to use template legal agreements that they find on the internet? What’s your…
…point of view on that?
So I think…and, you know, I…I’m gonna say this, and I don’t want listeners to think that this is just another lawyer, you know, feathering his nest, and so forth. But I really hope that listeners don’t just pick up an agreement they find on the internet, whether that’s Legal Zoom or Rocket Lawyer, any of these great inst…institutions that make…that really make legal services more accessible to people. I understand why they’re out there, and they perform a service. But actually, they themselves will have a big caution on their website that “we are not lawyers, you should consult your own counsel,” and so forth. But how many people really do that after they buy an agreement for $100? Right? And so, you know, I talked about the traps. Well, there are all sorts of traps in these agreements that may interfere with their enforceability. So I think that you do that at some risk. And, you know, there’s nothing, these…these days, I mean, you know, with with law…law firms and lawyers, if cost is an issue, ask your lawyer “What’s the budget for this?” so that you don’t get surprised at the end of the day with a bill that is beyond your expectation. If it’s out of range for what you think it’s worth, then you have a discussion with your attorney about that. There’s nothing wrong with doing that. So I really don’t advise people to pick up really any contract and use it off of these sites, just because I think that these kinds of agreements are written in kind of a global sort of template way – you just talked…you said…you described them as being templates – and they may not work. They may not work for you.
Yeah, I think this is just too important. You want to get it right the first time. There’s no margin for error, I believe, so I’m not a fan of picking it up off the internet, either. So Michael, how could our listeners reach you if they wanted help, either with any type of employment law issue, but even more specifically, separation agreements?
They can certainly send me an email at Blickman at Ice Miller dot com. I always say that’s B as in boy, L-I-C-K-M-A-N at Ice Miller dot com. They could go on the website and contact me or any of our other great Labor and Employment lawyers, and they should feel free to do that. I’m happy to answer quick questions from people if they have them. If I can, I’m happy to do that anyt…anytime.
Well, thank you so much for joining us, Michael. I know I thought I was pretty up on severance agreements, and I’ve learned a lot today, so thank you for sharing.
That’s generous of you.
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So Susan, I’ve never actually been on the receiving end of a severance agreement, but I think you have. Tell us about that experience from your perspective.
Yes. And of course, I was an HR person who for decades who had worked on separation agreements with employees, and I’d often joked that, gosh, if I ever have to leave this organization, I hope I go with a severance agreement, right? Because I realized what a nice transition that is, to have some severance pay coming, to have outplacement, to really know exactly, you know, what to expect, not to expect. So I think the reality of when you actually do get the separation agreement is still…it feels like, oh, my gosh, this is real and I know I’m going to leave now and I…and here’s what the details are. But I think that the comfort of knowing all of those details, and there’s nothing left to question or wonder about, it’s spelled out, just like Michael talked about, every single thing the company is going to do for you is there, all of your obligations to the organization, which usually at that point is to say that, you know, you’ve not been discriminated against, you are going to hold in confidence the details of that agreement, and that you’ll, you know, provide back any of the company equipment that you have, all those types of things. It’s all spelled out. And I think there’s a real, I think, good closure to it. It’s kind of like at the end of someone’s life, I think it’s really important to have funerals and have wakes and things like that, because I think it’s closure. And I think a separation agreement is just another piece of that type of thing in the world of work.
Yeah. You know, I mentioned earlier in the podcast that I had had…had only had one person who didn’t sign a severance agreement, and I have to tell you, I frequently think about him, because I was so confused by his…what I felt was a lack of understanding around the agreement itself. And in hindsight, though, I’ve always wondered, because the part he seemed to question was about the outplacement services that we were providing for him, which, of course, he didn’t even have to take part in that.
Exactly. You offer it and it’s their option. Right?
Right. But I felt like he felt like we were trying to track him, you know, or try to follow what was happening with him or where he was applying or where he was searching for – which, we had no knowledge of that of any of our people who accepted outplacement services. So I don’t know, I just have always wondered about him and what made him so nervous about that. I also encourage our clients when they’re providing outplacement agreements to really think about, if they’re hearing the message at the same time, you know, “we’re terminating your employment and here’s your severance agreement,” that typically people aren’t in a state of mind where they want to read all those details or understand that all at one time. And of course, the document typically gives them a period of time anyway to review it, and even encourages them to get an attorney before they sign it, but I always encourage people to give them the highlights, like, to tell them, you know, maybe you’re going to be paid for the next two weeks or six weeks, and you’ll have health insurance for x. Those are typically the two things people…can alleviate some fear, but allow them not to start reading the document when their mind is totally somewhere else.
Very good advice. I think those are the headlines. You know, am I gonna be able to feed my family, are we insured, and then all the other wonderful things, hopefully, that you’ve added, that they’re getting a chance to read it before they sign it. And you could certainly follow up, have another conversation. I think that’s really smart advice. I have to tell you that in my separation agreement for the organization I worked with, outplacement was a component, and at the time I was able to pick my outplacement services, they told me I would get it and I had some choices. And I picked Career Consultants in Indianapolis with Patty Prosser, and part of my outplacement with her, she introduced me to you, so I would not be here with you if I had not had a separation agreement with an organization that gave me Patty, who gave me you.
Awesome! I had forgotten that.
Such a win-win.
What a beautiful tie-in there.
So, JoDee, I think that we should take a minute on this podcast and just talk about, What is HR’s role in separation agreements? You know, clearly we know that it’s smart to have your labor attorney draft the document that you use consistently and uniformly throughout. But you know, really, where do we come into play?
Well, I think one of those steps is that we should ensure that the individual’s separation is fair and warranted before having the document prepared. I can’t tell you how many times I get that question from clients that say, What should I offer them? What…what’s included? and…and so fair can be a broad word, right? What’s fair for someone who’s worked with you for 30 years or for three years? Right? What…What difference is that? But being equitable, and you know, having…although we don’t encourage people to have a policy around it, that they’re tied to it, they certainly can have some internal standards or guidelines about what they pay.
I think the second thing that we as the HR professional need to do is we need to help equip the manager, who’s usually the one delivering the news. For many managers, they’re terminating someone, might have only been a handful of times in their life, for some managers, it might be the first time, and it’s important that we help them understand and empathize with the person who’s going to get the news. We’ve got, you know, the experience, I think, to help them think about the words you use, the tone you use, and to really think about, you know, How can you do this in a way that’s fair and caring?
You know, we had a client a couple of years ago who hired Purple Ink to do the outplacement for a large group of people who were being let go, and not only did they hire us to do the outplacement, but they ended up hiring us to train their vice president level on how to send that message to the managers, and then the managers on how to send that message to the people. And that was the first time we done anything like that before, and I thought it was so beautiful that they were taking those extra steps and not just bringing us in once they were let go, but the beginning to share that message there.
Kudos to that organization. That’s doing it right.
The final thing, I think, is you, as the HR person, can make sure that every commitment made in that separation agreement is honored. And I think that’s important, because most managers, once they deliver the news, they rely on us in the organization to ensure, you know, if we said we’re not going to contest unemployment, well, we as the HR person, we may not be the person who does all that contesting, but we got to make sure it happens. If we say that benefits are going to be covered for a period of time, that needs to be, and the COBRA’s offered at the right time, and if there’s any supplement to that…so, all the details. There’s a lot of things to work on after that agreement is signed, and I really think that’s important we take it as seriously as the execution of the document.
JoDee, we’ve got a listener question today. “My company is getting ready to hire our first HR manager and our senior leadership team is struggling to figure out what to call the role. One senior leader wants to call it the position HR director, one wants People Leader, one wants Chief HR Officer, one wants Head of Talent. I’m thinking HR manager works. What does JoDee and Susan think?”
You know, such a hot topic right now, I think, as…for a couple reasons. People are trying to be more creative with their titles, which I…I love creativity, and I love unique and different talents or titles, but we’ve also talked before about even just when you’re searching for…or you’re posting a position, and how you might need to be careful on what people are searching for. So that could be a whole topic on what title you might use to post it on. I personally have sort of a…an issue with People Leader or Chief People Officer, as I think that sort of implies if I’m the Chief People Officer that I’m in charge of all people and nobody else is, and that I think we all need to be in charge of our people. So I…I love the creativity of that title, but I have a bit of an aversion to…to that one in particular. Head of Talent, I think, sort of can imply some people that our Head of Talent might be more learning and development heads, or sometimes I see recruiters called that, so I think that’s a bit more specific title than just an HR Director or Chief HR Officer. I do like Chief HR Officer, by the way, that’s my favorite. What do you think, Susan?
JoDee, I love that question. You know, I think you need to look at the industry you’re in to see what are HR people called in that particular industry, because you’re trying to attract people to it. There may be some familiarity. It seems like in startups, a lot of them will call them the Chief People Officer. I do see a lot of traction with Chief Talent Officer. I think that it’s smart to kind of look and see your competitors. What are they calling those roles? And my other thought is depending on the size of organization, you might want to bring the person in as an HR Manager, and then as they continue to grow and your business grows, then you want to have the opportunity to elevate them and promote them. So you might decide that that person might become your Chief HR Officer after so long, and then maybe that even grows somewhere after that. So I would give some thought to this. Sounds like you are, and you know what, you really can’t go wrong. Well, whatever you end up with this…this is a high quality problem, right? I think they’re all decent names. So good luck to you.
Yeah. In our in the news, Google announced recently that they will return to their company’s physical offices in September of ’21. Their CEO, Sundar Pichai, said Google will pilot a hybrid scheduling model under which certain employees would work in the company’s offices for at least three days per week and at home or elsewhere for the rest of the week. Pichai also said that no company at this scale has ever created a fully hybrid workforce model. Personally, I’ve been expecting this – probably most of you have – but now that Google has officially announced it, it will be interesting to see who and how many will follow. You know, a lot of other companies are announcing that they’re not coming back to work to the office at all, so I think it’ll be interesting to see what happens. Earlier in 2020, a Mercer survey of U.S. companies showed that 83% of respondents were considering flexible work at a greater scale than they had prior to the pandemic. I think this is great news for both employers and employees.
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