Benefits of Severance Agreements for Employers

You are an employer and you want to terminate a manager or executive.  You are hesitant to offer the employee a severance payment of any kind because, frankly,  you do not think that the employee deserves such a payment based on his or her work performance.  That is a fair position to take.  No one wants to pay a poor employee additional money on his or her way out the door.

But, there are other factors the employer should consider in deciding whether to make an offer of severance to the departing employee.  The obvious consideration is whether the employee will agree to execute a release of any potential claims he or she has or may have against the employer related to his employment and termination.  Obtaining such a release can be extremely beneficial to an employer, particularly in a circumstance where you believe the terminated employee is likely or potentially litigious.

Another factor not often considered is the potential impact a severance agreement can have on litigation or claims raised by other employees.  Former employee witnesses raise several difficult circumstances for employers in employment litigation.  Under normal circumstances, a former employee is under no obligation to cooperate in litigation.  While that employee may be forced to cooperate under the authority of a subpoena, use of a subpoena is not likely to engender strong feelings of support from the former employee.

Depending on the former employee’s status in your company, it is not a foregone conclusion that your counsel will be able to represent that former employee in litigation as a non-party witness.  As such, cooperation is essential because the communication with that employee, even through your counsel, is not necessarily protected by the attorney client privilege.

Severance agreements can include cooperation clauses requiring that, in consideration for the severance payment, the employee is required to cooperate with the employer and its counsel in litigation the subject matter of which the employee may have material knowledge.  The clause may require the employee to keep the employer informed of his or her whereabouts after termination.  It may also require the employee to contact the employer if he or she is contacted by a party or counsel who has or intends to bring a claim or suit against the employer.

A cooperation agreement such as that suggested will provide some protection from rogue former employees.  Not only will the employee have released his or her potential claims, but he or she will also be required to cooperate in your defense or prosecution of other matters.  Such agreements are not a failsafe for the employer.  The employee can not be required to withhold non-confidential information or to testify falsely.  However, by maintaining some control over the former employee, the employer can maintain some piece of mind in the event of future litigation concerning which that employee may have material information.  The limited costs of paying some weeks of severance to a departing employee may seem very reasonable if faced with future litigation with the knowledge that your former employee(s) is/are required to cooperate with your defense or prosecution of the matter.

If you are considering terminating a management or executive level employee and want to discuss those matters discussed herein or related issues, then you should be certain to contact Sullivan Heiser, LLC for assistance. Please make note of our telephone number and contact us to schedule a no-fee consultation.