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What is a severance agreement?

Perhaps you are being promoted at work and, in your new position, will be a member of senior management. You will be privy to confidential information the company does not want departing employees to share with outsiders. Is a severance agreement in your future?

About the severance agreement

If you should leave your employment with the company, the severance agreement you sign will provide you with compensation in return for certain limitations. Your employer hopes to use this contract to exercise a level of control over your conduct so that you will not, for example, give away trade secrets or engage in a lawsuit against the company in the event that a legal issue arises.

Careful wording

The Equal Employment Opportunity Commission has strict guidelines about the way language is used in a severance agreement. To be enforceable, the agreement must contain wording that is precise and not “overly broad and misleading.” For example, if a severance agreement contains a confidentiality provision that infringes on the former employee’s right to institute or take part in a state or federal discrimination proceeding against the company, the court could find the agreement to be unenforceable.

For older departing employees

A severance agreement for an employee 40 years of age or older has special requirements. The language in this agreement must be plain and clear with no legal jargon or complex sentences. An employer must give the employee a minimum of 21 days in which to read and consider the agreement. Even after signing, the employee must have another seven days in which to have a change of heart and revoke it. The content must also include a reference to the Age Discrimination in Employment Act and recommend that the departing employee seek the advice of an attorney before signing the agreement.

Serving the employer

Although, as the departing employee, you may feel the compensation is fair—perhaps more than fair—and you do not object to the limitations imposed on you, obtaining a legal review of the severance agreement is essential. This is a document that traditionally protects the interests of the employer. You want to ensure your own interests are also served.

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