It will come as no surprise that employment exit agreements, also known as employment separation agreements, are used when an employee is leaving a company, but all exit agreements are not alike. Companies can include any number of provisions, depending on what they consider necessary. These can include nondisclosure agreements that put contractual limits on what the employee is allowed to divulge in terms of information and noncompete agreements that limit where a former employee can work. They can also include severance packages and general releases or waivers of rights to sue.
Not every employee is asked to sign an exit agreement at the end of an employment relationship. But those who are presented with an exit agreement will do well to understand the different types of provisions that may be included and how it might affect their rights under employment law. Only then can the employee make an informed decision about whether to sign the agreement.
Job Separation Specifics
Any employee exit agreement is likely to begin by setting out the specifics of the job separation. These include the name of the employee and the name of the company, the date the employee started employment and the date of separation. The termination agreement may also state the reason for separation, for example, whether the employee quit, was fired or was laid off by the company for reasons having nothing to do with the employee's performance, such as restructuring. It can also list what company property is in the employee's custody, such as a credit card, cell phone or keys to the building, and whether or not it must be returned.
Note that an exit agreement should be distinguished from an employment termination letter. An employer writes a termination letter to communicate the termination of the worker's employment, with or without cause. It includes details about the termination and the termination date. For example, in cases where the employee is fired for misconduct, it will include a description of the event that resulted in the decision to dismiss the employee.
It may also include information about any previous warnings about behavior. The letter is sent to the employee to provide a formal notice of dismissal from their current position with the company. It is not an agreement signed by both parties, but a letter from the company to the employee.
If an employee has had access to the company's confidential information, they may be asked to sign an exit agreement that includes a nondisclosure provision. This includes any proprietary matters, including trade secrets, intellectual property, business plans, and research and development of new products. A nondisclosure agreement prohibits the employee from revealing these company secrets or confidential information that the company would like to keep quiet. The provision is likely to describe the employee's liability for disclosure.
A noncompete provision limits the type or location of work the departing employee can undertake. It may prevent the employee from working in the same field they worked in for a set period of time or in a specified location. This is intended to protect the company's competitive edge by stopping former employees from working for the competition or setting up shop just down the street from their former employer.
A company would prefer that employees don't badmouth them once they leave their employ. This is the purpose of a nondisparagement provision. It sets out what the employee can or cannot say about the business in general and the employee's termination in particular.
In this country, the law mandates only that separating employees are paid their wages through their final day of work, plus any accrued vacation time. As a result, not every employee is offered a severance package. The package can include extended benefits and/or a monetary payout. The worker's employment contract may mention the possibility of a severance package, but the availability of severance pay may be related to the reasons for termination. For example, severances may be available when an employee is laid off because the company is downsizing.
Many times, a company prefers that the employee doesn't share the terms of the agreement. For example, if an employee gets a valuable severance package, the company may prefer to keep this information away from the eyes of other employees. Confidentiality provisions require that the employee keep confidential all elements of the exit agreement.
General Release of Claims
A general release is language in a contract that provides a broad release from all possible civil claims resulting from the employee's separation from the company. The employee is giving up both known and unknown claims against the company. That includes matters like wrongful termination, as well as back wages, compensation for unused vacation leave and any other claims. The release may be specific to the termination or may include all present and future claims.
To Sign or Not to Sign?
An exit agreement is not a one-sided statement, like a notice of termination. It is a contract and each party – the employer and the employee – makes certain promises to do or not to do certain things. That means that the employee is not obligated to sign the agreement and should not sign, in any event, without discussing the matter with an attorney.
To sign or not to sign? As with any contract, the decision to sign or refuse to sign must be based on a thoughtful weighing of the benefits against the costs. The employee needs to be sure they understand their rights outside of the agreement before signing it. For example, if they were promised a severance package in their initial employment agreement, they may be able to get the same benefits without having to give up any other rights.
On the other hand, if the initial employment agreement included a nondisclosure clause, the employee is already bound to keep the company's information secret. That means that signing the exit agreement may "cost" the employee less than it appears on its face.
Importance of Legal Advice
An attorney's advice is especially important if the agreement contains a general release or any agreement not to sue. The "cost" of this provision to the employee depends on what potential litigation they may have against the company. For example, if the employee has a strong case that they were fired because of racial or age discrimination, they may be better off financially refusing the exit agreement and suing the employer.
On the other hand, if the employee has no significant claims against the company, giving up the right to sue looks very different. In that case, a nice severance package may be more valuable than holding onto the right to sue.
Understand the Terms Before Signing
An employee who is asked to sign an exit agreement should be sure to understand its terms. If necessary, the employee should consult with a lawyer so that they can weigh the benefits against the costs. Issues like noncompete clauses and general releases can be costly if not fully considered before entering into the agreement, and they must be balanced against the size and substance of the severance package.
Teo Spengler earned a JD from U.C. Berkeley Law School. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an MA and an MFA in English/writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.