Separation and Settlement Agreements

The payment of severance to terminated employees, and settlement payments to resolve pending litigation are, to some extent, a cost of doing business in the United States. In exchange for such payments, the employer typically receives a global release of all claims that the employee may have against the employer, as well as other promises by the employee to take certain steps (e.g., voluntarily dismiss a pending lawsuit) or to refrain from engaging in certain conduct (e.g., making disparaging remarks about the employer to third parties). Too often, employers blindly “copy and paste” language from old agreements that may contain outdated provisions that no longer comply with current law, or that were tailored to a factual setting different from the situation they are currently facing. This article contains tips for drafting effective separation and settlement agreements that maximize the employer's return on its severance or settlement payments to departing or former employees.