Job loss often deals a significant financial and professional blow to laid-off workers. While unemployment benefits can help to ease some of that strain, they do not fully replace a laid-off worker’s wages. Some workers may also be offered a severance agreement, which, depending upon its terms, may provide the laid-off worker with a base salary, benefits, and other perks for a period of time after they leave their former employer’s employment. Not every worker will be offered a severance agreement; if you are one of the lucky ones who are, you should consider having it reviewed by a Richmond severance agreement attorney before you sign.
Who Do Severance Agreements Benefit?
Severance agreements may seem primarily employee-friendly on their face, but they actually have benefits for both employers and employees. While severance agreements may cost employers up front, employers often use them to secure promises of certain behavior from departing employees, such as non-compete agreements, non-solicitation agreements, confidentiality agreements, and covenants not to sue. The offer of a generous severance package to departing employees can function as a form of insurance against future headaches, as it increases the likelihood that the employee will leave on good terms. For employees, severance agreements can provide a financial cushion and help to ease the transition to a new role.
Key Severance Agreement Terms
As discussed above, some severance agreement terms primarily benefit employers, while others primarily benefit employees. Some of the most common employer-friendly severance agreement terms include:
Non-compete clauses are one of the most common terms in severance agreement. These clauses generally prohibit a former employee from working for a former employer’s competitors for a certain period of time. But because they are considered restraints on free trade, they tend to be disfavored — though nonetheless enforceable — by Virginia courts.
Under Virginia law, a non-compete clause must meet the following three requirements to be enforceable:
- The restrictions must be no greater than necessary to protect a legitimate business interest of the employer
- The agreement may not be unduly harsh or oppressive in curtailing the employee’s ability to earn a livelihood
- The agreement must be reasonable in light of public policy
Non-compete agreements are categorically unenforceable in Virginia against low-wage employees. A “low-wage” employee is an employee whose weekly earnings for the previous year were less than the average weekly wage in the commonwealth. For more information about the enforceability of non-compete clauses, please speak to a Richmond severance agreement attorney.
Non-disparagement clauses prohibit former employees from making negative or disparaging remarks about their former employers. In many cases, the clause extends to the former employer’s employees, products, services, and suppliers.
Many employers incorporate confidentiality agreements into their employment agreements, but they also tend to arise in severance agreements. Confidentiality agreements typically prohibit current and former employees from disclosing certain information to third parties, such as trade secrets, product and marketing plans, customer lists, prototypes, and client information. A good confidentiality agreement should clearly define the information deemed to be confidential and the prohibited use of such information.
Virginia’s Speak Out law bars employers from requiring employees to sign agreements that would have the effect of concealing the details of claims of sexual harassment or assault. However, Virginia’s Speak Out law applies only to agreements entered into as a condition of employment. Such clauses remain valid and enforceable in severance agreements.
Covenants Not to Sue
Covenants not to sue are liability waivers wherein the departing employee agrees not to pursue legal claims against the employer for actions that occurred during the course of the employee’s employment. This can include a variety of legal claims commonly made against employers, including wrongful termination, discrimination, Family and Medical Leave Act violations, and others.
Some of the most common employee-friendly severance agreement terms include:
Severance pay is among the most common employee-friendly provisions in severance agreements. There is no set formula for determining the amount of a departing employee’s severance pay — it varies from employer to employer, and it is frequently the subject of employer-employee negotiation. One of the most common methods of determining severance pay is to base it upon the length of time that the employee was employed.
Unused Paid Time Off
Many employers offer employees a certain amount of paid time off and personal days. Neither federal law nor Virginia law require employers to pay departing employees for unused paid time off, they must adhere to their own policies and contracts. However, if an employment contract or company policy provides for the payment of unused paid time off, the company must provide it to departing employees. If your employer is refusing to pay you for unused paid time off in violation of a company policy, please contact a Richmond severance agreement attorney.
Continuation of Insurance Coverage
Job loss typically also leads to loss of insurance coverage. While most laid-off employees can continue their insurance coverage for up to 18-36 months through COBRA, they typically must pay the entire cost of such coverage themselves. Some employers may offer to continue to subsidize those costs as part of a severance agreement.
Assistance Finding Another Job
Executive-level severance agreements often provide for outplacement services for the departing employee. Such services can include recruitment assistance, resume writing and reviewing, interview preparation, networking, and the use of an office address or phone number.
Reason for Departure
Employers and employees may use severance agreements to clarify the reason why an employee departed. This reason may or may not be the actual reason. For example, the parties may agree to characterize the departure as an “amicable,” “voluntary,” or “mutual” separation even when those terms are less than fully accurate.
Finally, employees may use severance agreements to establish whether the former employer may be used as a reference and what information the former employer may disclose when asked.
Speak to a Richmond Severance Agreement Attorney Before Signing
Severance agreements often require departing employees to waive certain legal rights, and those waivers are not always in the employee’s best interest. Before signing a severance agreement, contact a Richmond severance agreement attorney at Pierce / McCoy by calling 757-304-6655 or using our online contact form.