Separation Agreements and Releases
Separation Agreements and Releases

In some employee separations, the company may choose to offer a Separation Agreement and Release. (S&R). A S&R sets out the specific terms for an employee’s separation, and typically includes an employee’s release of claims against the company in exchange for the payment of money to the employee by the company (referred to as “consideration”).

S&R’s are not included by default in all involuntary terminations, but may be included in situations that are deemed to be of higher risk, wherein the company wants to set out specific separation terms and get a release of claims from the employee. Some executives may have separation terms already set out in their employment agreements, based on specific termination reasons.

Why use a separation agreement?

One of the most important reasons to get an employment separation agreement is to obtain a waiver of claims that can prevent a terminated employee who has involuntarily separated from the company from suing your business for claims related to their employment.

When to use a separation agreement?

If there is potential for a released employee to file a wrongful termination lawsuit for:

Discrimination

Retaliation

Concerns about circumstances of the exit (little to no documentation (ie. poor performance or behavior); unclear reason for termination)

Also, company layoffs are employment situations where you typically see separation agreements being issued.

When to engage employment counsel?

ALWAYS partner with legal employment counsel before any involuntary employee terminations.

Engage internal HR in the process as soon as possible.

What are the risks?

Companies have different risk tolerances when it comes to involuntary separations and separation/severance agreements. Although, not all involuntary separations require separation agreements - we do suggest a company errs on being more risk-averse if there is any gray area surrounding the circumstances of the separation.

As a manger you should 1) partner with HR prior to any conversation with the employee; 2) partner with outside counsel/HR to discuss the risk level involved; 3) partner with CEO/C-level to make a final determination.

Standard severance amounts

Severance amounts can range from 2 weeks (in lieu of notice) to several months depending on the situation, length of employment, and level of employee. The intent is to help bridge the gap while the employee finds their next opportunity. (Also, an incentive to sign the separation agreement.)

Standard Practices:

2 weeks (under 1 year of employment) - in lieu of notice

2 weeks + 1 additional week for each additional year of employment

Start at 4 weeks (Director and above)

C-level (review offer letter for terms)

Covering the monthly cost of continuing the current company benefit coverage may also be offered to the employee in a separation agreement. This can be offered in the form of direct coverage up to a certain number of months of COBRA enrollment (note the employee would need to enroll in COBRA first), or as a “lump sum” that is equivalent to the number of months of COBRA coverage you choose to offer to the employee.

Standard Practices:

Below Director (1 month - exception not a rule)

Director and above (1 - 2 months)

C-level (review offer letter for terms)

All employment separations are unique and separation agreements can vary, but best practice is to be consistent with your philosophy and reasoning for severance and COBRA awards.

General Guidance on Delivering Separation Agreements

Be aware of the time requirements for reviewing the agreement

Employees over 40 years of age must be granted 21 days to review and sign; after signing they have an additional 7 days to revoke the agreement;

All other employees typically receive 7 days to review (California)

For group

layoffs⁠

, employees over 40 receive 45 days to review and sign, plus an additional disclosure under Title 29 U.S. Code Section 626(F)(1)(H)

States have different rules. Be aware of the state that you are terminating in, consult with your Employment Counsel on all separation agreement language and terms

Someone from HR should deliver the separation agreement to the employee, followed up with an electronic copy for their review and signature

The signing of the separation agreement is voluntary - don’t encourage or persuade anyone to sign it.

Go over the terms and the timeline for review and signature and state employees can have the document reviewed by their own legal counsel, if desired.

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