Washington State law does not require employers to provide severance pay. However, when an employee is facing unwanted termination, a severance agreement (sometimes also called a separation and release agreement) can benefit both sides. Whether you are an employee who has been handed an agreement, or an employer needing to terminate an employee for any reason, it’s important to know what you are giving up and what you are gaining by entering into such an agreement.
At the most basic, severance agreements give additional compensation to the departing employee in exchange for releasing the organization from liabilities, protecting trade secrets, and protecting its reputation and customer base. In drafting these agreements, beware of the following pitfalls:
1. Insufficient consideration
Consideration is a legal word for what you get in exchange for the agreement. Usually, the employee gets additional compensation, beyond what he or she would’ve expected to receive. If the compensation is not beyond what would’ve been expected, the agreement may not be valid and enforceable. Similarly, the compensation should be tailored to the employee – an employee with 20 years of service with the organization should receive more compensation than one in a similar position who has been employed for 5 years or less. To maintain the appearance of fairness, employers frequently calculate the additional compensation based on the current salary (for example, an additional month’s pay at the current payrate).
2. Insufficient time to consult with an attorney before (and sometimes after) signing
Employees are required to have a “reasonable time” to think about whether to sign before a signature is required. If the employee is 40 years old or older, then he or she must receive at least 21 days to consider the offer. If the termination is in connection with a larger group or class of terminations (like a reduction in force, or the elimination of a department or program), then the over-40 employee is entitled to 45 days to think about the offer. Employees 40 and older are also entitled to a 7-day revocation period, where they can change their mind and rescind their agreement.
3. Forgetting to review the employee handbook
If the employee handbook says anything about severance agreements, then the employee handbook must be followed. Not only must a severance agreement be offered if it is part of the handbook, but sometimes handbooks will detail how the additional compensation is calculated – and the handbook will govern how this agreement is enforced by the courts. The is also true of any procedures for handling disputes (for example, by mediation or arbitration).
If your organization needs a severance agreement, I can help you create one that honors your employee’s contributions while also providing for a clean and respectful separation. Contact me today to set up an appointment.