Employment Agreement

What should I look out for in my Separation Agreement?

Jul 25, 2023

While we focus a lot on contracts from the start of a job, the current economic climate has resulted in more and more people reviewing Separation Agreements. At a point where leverage seems lowest, we’re writing this post to highlight the rights and areas of focus for individuals leaving their employer for any reason.

  1. Agreement Review Period

    If you are 40 or older, you are entitled by federal law (Older Workers Benefit Protection Act) to 21 days review and 7 days revocation period. That means you have 21 days to evaluate the agreement to sign it if you choose to, and 7 days after signing to ‘undo’ the decision if you’d like. In cases of a broader layoff involving a group of employees, you must be given at least 45 days. These counters reset each time a significant change is made to the agreement.

    If you are under 40, there are no federal stipulations, but requirements differ by state. For example, California requires at least 5 business days of review (SB-331) and Minnesota requires at least 15 days revocation period (363A.31), regardless of age.

  2. Release of Legal Claims

    One of the primary goals for the employer is to protect themselves against lawsuits. Waiving your right to future legal action (e.g. suing for wrongful termination) is one of the most common components of a Separation Agreement. Somewhat related is the Non-Cooperation clause, which prevents you from helping any third party from suing the customer. While these clauses are standard, there is both federal and state law that protects individuals to still file claims on unlawful activities like discrimination.

  3. Severance Benefits

    You’re not legally required to sign Separation Agreements, so companies often provide benefits like Severance Pay, extended health insurance, and job-search resources as an incentive for signature. These benefits are in addition to the wages and general compensation benefits you have already earned, as it is illegal for employers to withhold wages you are owed for your signature. For Severance Pay, the payment is subject to taxes, so take a look at the payment schedule and consult a tax advisor for minimal liability.

    There are also benefits that are guaranteed regardless of your signature such as access to a health insurance plan and payment for unused vacation. For example, employers with more than 20 employees must make available the same healthcare for opt-in individuals that choose to pay the premium as required by the Consolidated Omnibus Budget Reconciliation Act (COBRA)

  4. Non-Compete, Non-Solicit, Non-Disclosure, Non-Disparagement, Non-Cooperation

    We won’t get into the definitions here given our in-depth blog posts on each clause, but these clauses all have two things in common. First, they restrict what individuals can do after leaving the employer. Second, they are increasingly unenforceable particularly when restricting an individual’s ability to make a living or silencing unlawful workplace activities like harassment and retaliation. Make sure you understand the agreement’s impact on your future employment and know that restrictions not in accordance with the law won’t be enforceable even with your signature.

  5. Referenced Documents (Employee Handbook and Equity Agreement)

    Your Separation Agreement will often reference terms from the set of Employment Agreements you signed initially and state they ‘continue to apply’. Other aspects of your benefits may only be described in detail in other documents like your Employee Handbook or Equity Agreement. It’s especially important you understand what will happen to your equity after termination, such as the Post Termination Exercise Period of options and NSO Conversions after 90 days.

The end of your time with a company can be a very stressful time where reviewing pages of legal documents is the last thing you want to do. It’s easy to either ignore it or sign it without reading the details to get the Severance Pay. We believe each individual can make the best decision for themselves only after understanding and preparing for everything they would be signing up for, so make sure you read and negotiate your Separation Agreement!

For advocacy and beyond,
The Ask Ginkgo Team

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