Separation and Release of Claims Agreement

A separation agreement (also commonly referred to as a severance agreement) between an employer and a departing employee specifying terms of the employee's separation from employment, including a release of legal claims against the employer in exchange for a benefit. This Standard Document is drafted in favor of the employer and has integrated notes with important explanations and drafting tips. This Standard Document is based on federal law. For information on state law requirements, see the State Q&A Tools under Related Content.

Practical Law Labor & Employment
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General
General

This Separation and Release of Claims Agreement (sometimes referred to as a release, waiver and release or severance agreement), specifies certain terms of an employee's separation from employment, including a release of legal claims against the employer in exchange for a benefit the employee would not otherwise have been entitled to receive. This Standard Document assumes no other entitlement to separation pay or benefits, whether by prior agreement, group plan, employer practice or for any other reason.

Use of a separation and release of claims agreement provides several benefits, including:

  • Minimizing the risk of litigation by the employee following separation.

  • Binding the employee to new post-termination restrictive covenants (www.practicallaw.com/9-382-3769) and continuing obligations the employee was not previously bound to.

  • Reminding the employee of continuing obligations under existing restrictive covenants and gaining re-acknowledgment of those obligations by the employee.

Separation and release of claims agreements can be used regardless of the reason for an employee's separation from employment, whether voluntary or involuntary. They can be used for single terminations or group terminations (also called layoffs or reductions in force (www.practicallaw.com/9-382-3830)). Certain additional requirements must be met for separation and release of claims agreements used in connection with group terminations, as described in Drafting Note, Release of Claims below.

Some federal and state legal claims cannot be released regardless of any benefit offered in exchange for the release (see Drafting Note, Release of Claims below). For state claims, because state law varies on which claims cannot be released, the relevant state law should be reviewed (for more information, see Employment Claims in Release Agreements: State Q&A Tool (www.practicallaw.com/9-505-9590))

In addition, waiver and release of claims under the federal Age Discrimination in Employment Act (www.practicallaw.com/2-501-7061) (ADEA), cannot be waived without certain requirements being met (see Release of Claims).

 

Separation and Release of Claims Agreement

 This Separation and Release of Claims Agreement ("Agreement") is entered into by and between [EMPLOYER NAME], a [STATE OF INCORPORATION OR LOCATION] [TYPE OF ENTITY], (the "Employer") [on behalf of itself, its subsidiaries and other corporate affiliates and each of their respective employees, officers, directors, owners, shareholders and agents (collectively referred to herein as, the "Employer Group")], and [EMPLOYEE NAME] (the "Employee") (the Employer and the Employee are collectively referred to herein as the "Parties") as of [DATE] (the "Execution Date").

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Defining Employer
Defining Employer

Most employers enter into separation and release of claims agreements on behalf of themselves without reference to corporate affiliates. The optional language in the preamble, "[on behalf of itself, its subsidiaries and other corporate affiliates and each of their respective employees, officers, directors, owners, shareholders and agents (collectively referred to herein as, the "Employer Group")]", gives those who prefer to include corporate affiliates as third-party beneficiaries (either by name or description) an opportunity to include that language.

The term affiliate (www.practicallaw.com/1-382-3221), when used in the preamble, most often means entities that control, are controlled by or are under common control with a given entity, including the corporation's parent and subsidiaries, although "subsidiaries" are sometimes referenced separately for clarity.

Whether to include affiliates depends on the nature of the employer, its ownership and its organizational structure. Unless there is clearly no legitimate business interest in including corporate affiliates, there is little practical downside to being over-inclusive.

If the employer uses this optional language to include affiliates, certain references to Employer should be changed to Employer Group, as indicated by optional language throughout the Standard Document.

 

 The Employee's last day of employment with [EMPLOYER NAME] is [DATE] (the "Separation Date"). After the Separation Date, the Employee will not represent [himself/herself] as being an employee, officer, attorney, agent or representative of [EMPLOYER NAME] for any purpose. Without limiting the foregoing, the Employee specifically agrees to update any and all social media accounts the Employee accesses, uses or maintains to reflect the fact that the Employee is no longer employed by [EMPLOYER NAME] within three days of the Separation Date. For purposes of this paragraph, social media accounts include but are not limited to Facebook, LinkedIn, Twitter and Four Square. Except as otherwise set forth in this Agreement, the Separation Date will be the employment termination date for Employee for all purposes, meaning Employee will no longer be entitled to any further compensation, monies or other benefits from [EMPLOYER NAME], including coverage under any benefits plans or programs sponsored by [EMPLOYER NAME].

Hide Note: Separation and Execution DatesNote: Separation and Execution Dates
Separation and Execution Dates
Separation and Execution Dates

Although the Separation and Execution Dates are listed separately here, they can occur on the same day if the employee's last day worked is also the day the employee signs the agreement. Regardless, the employer should ensure that the Separation Date does not occur after the Execution Date, as the employee is releasing claims occurring through the Execution Date, but not beyond it.

 

1. Employer Group's Waiver and Release and Employee Representations.   [The Employer Group expressly waives and releases any and all claims against the Employee that may be waived and released by law [with the exception of claims arising out of or attributable to (a) events, acts or omissions taking place after the Parties' execution of the Agreement; (b) Employee's breach of any terms and conditions of the Agreement and (c) Employee's criminal activities or intentional misconduct occurring during Employee's employment with [EMPLOYER NAME]]]. In exchange for [the Employer Group's waiver and release and] the consideration described in paragraph [x], which the Employee acknowledges to be good and valuable consideration for [his/her] obligations hereunder, the Employee hereby represents that [he/she] intends to fully settle any and all claims [he/she] may have against [EMPLOYER NAME] as a result of [his/her] hire, employment or separation from employment with [EMPLOYER NAME]. The Employee specifically represents, warrants and confirms that: (a) [he/she] has no claims, complaints or actions of any kind filed against the Employer Group with any court of law, or local, state or federal government or agency; (b) [he/she] has been properly paid for all hours worked for [EMPLOYER NAME], and that all commissions, bonuses and other compensation due to [him/her] has been paid, with the exception of (i) [his/her] final payroll check for [his/her] salary [and] [ANY OTHER UNPAID COMPENSATION] through the Separation Date above, which will be paid on the [next regularly scheduled payroll date/Separation Date] and (ii) any vested benefits under any of the [EMPLOYER NAME]'s employee benefit plans which shall be governed by the terms of the applicable plan document and award agreements; and (c) [he/she] has not engaged in, and is not aware of, any unlawful conduct in relation to the business of [EMPLOYER NAME]. If any of these statements are not true, the Employee cannot sign this Agreement and must notify [EMPLOYER NAME] immediately, in writing, of the statements that are not true. Such notice will not automatically disqualify the Employee from receiving these benefits, but will require [EMPLOYER NAME] review and consideration.

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1. Employer Group's Waiver and Release and Employee Representations
Employer Group's Waiver and Release and Employee Representations

The first line in the above paragraph is an optional disclaimer of liability to the employee by the employer. Employees are generally more likely to execute release agreements when they include an employer release of claims toward the employee. In most cases, this disclaimer is an easy concession to make because the majority of employees do not engage in wrongful behavior that would cause the employer to seek legal redress. However, before including this disclaimer, employers should assess whether the employee may have caused harm to the employer for which it may want to seek redress. For example, an employee may have wrongfully divulged trade secret or other confidential information, breached a non-compete or non-solicitation agreement, or caused some other harm. Where there is any doubt about the employee's actions, this disclaimer should not be included.

The remainder of this section is intended to ensure that the employee's release is fully knowing and voluntary, as further explained below in Drafting Note, Knowing and Voluntary Acknowledgment.

 

2. Separation Benefits.   In consideration for Employee's execution, non-revocation of, and compliance with this Agreement, including the waiver and release of claims in paragraph [x], [EMPLOYER NAME] agrees to provide the following benefits:

(a) [A lump sum of [DOLLAR AMOUNT ($ NUMERIC DOLLAR AMOUNT)] minus all relevant taxes and other withholdings to be paid [PAYMENT DATE, PAYROLL PERIOD OR NUMBER OF DAYS NO MORE THAN 60 DAYS IN ALL CASES, FOLLOWING THE EMPLOYEE'S TERMINATION DATE].] [Installment payments equal to Employee's current salary for a period of [NUMBER] weeks following the Separation Date, equaling a total of [DOLLAR AMOUNT ($ NUMERIC DOLLAR AMOUNT)] minus all relevant taxes and other withholdings to be paid [PAYROLL FREQUENCY] starting on the first pay period following the Effective Date of this Agreement but no later than 60 days following the Employee's termination date. The first installment payment shall include all amounts that would otherwise have been paid to the Employee during the period beginning on the Separation Date and ending on the first payment date.]

(b) [If the Employee timely and properly elects COBRA continuation coverage under the [NAME OF EMPLOYER'S GROUP HEALTH PLAN], the Employee shall only be required to pay active employee rates, as in effect from time to time, for [NUMBER] months. At the conclusion of this period, the Employee shall be eligible to continue [his/her] coverage, pursuant to COBRA, and shall be responsible for the entire COBRA premium for the remainder of the applicable COBRA continuation period.]

(c) [Outplacement services, up to $[DOLLAR AMOUNT], in the aggregate, provided that such services are provided on or before [LAST DAY OF THE SECOND CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE EMPLOYEE TERMINATES EMPLOYMENT]].

(d) [Upon the Employee's signed request, [EMPLOYER NAME] will provide the Employee and/or a prospective employer written confirmation of the Employee's employment with [EMPLOYER NAME], including [his/her] dates of employment and salary information.]

Hide Note: Separation BenefitsNote: Separation Benefits
2. Separation Benefits
Separation Benefits

This section defines the separation benefits the employee will receive if he or she signs the release agreement. These benefits are the employee's consideration for entering into the agreement and releasing the employee's potential claims against the employer. The employer must provide legally adequate consideration to support the employee's release of claims. This consideration must be some benefit that the employee was not already entitled to. What constitutes adequate consideration varies from state to state, but is typically minimal (for example, a week of compensation per year employed). However, state law should be checked to ensure there is no precedent providing guidance on sufficient consideration to support a release of claims in the particular jurisdiction.

Separation benefits can take many forms, including a lump sum payment, installment payments and post-termination health care coverage. When drafting the payment date for lump sum payments or the payment schedule for installment payments, the parties must ensure that payments are not scheduled to be made or begin before the latest date on which the release of claims can be revoked.

Post-termination health care coverage can be provided either through:

  • Employer-subsidized coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (www.practicallaw.com/8-501-7063) (COBRA) for a specified period of time. This is the way continued benefits are provided in this agreement. If the employer subsidizes COBRA coverage, the employee must timely and properly elect COBRA coverage. The employer's obligation ends on the date specified in the agreement, or if earlier, the date the employee is no longer receiving benefits under COBRA.

  • Permitting the employee to continue receiving benefits as an active employee. This method is less common because the terms of the employer's plan and any insurance policies must permit terminated employees to continue participating in the plan as active employees. If continued benefits are provided this way, the agreement should specify that the employee's COBRA continuation period runs concurrently with the period that the employee receives these benefits. This clarifies that the employee is not eligible to receive continued coverage beyond the date otherwise required by COBRA.

If post-termination coverage is provided under either method, the employer must consider possible adverse tax consequences to the employer and the employee.

Under the Internal Revenue Code (www.practicallaw.com/2-382-3555) (IRC), if an employer's group health plan is self-insured (generally, a plan in which benefits are paid out of the employer's general assets), there are nondiscrimination requirements that the plan must satisfy (see IRC § 105 and Treas. Reg. §§ 1.105-1 to 1.105-11). These requirements generally prohibit the plan from providing preferential benefits or eligibility requirements to certain highly compensated employees. If the plan does not satisfy these requirements, the employee incurs adverse tax consequences.

If an employer intends to provide continued benefits under a self-insured plan, it must first determine whether they would cause the plan to be discriminatory under the IRC. If so, the employee can generally avoid the adverse tax consequences if the employee pays for the coverage with after-tax dollars. For example, the employee can pay the applicable premium amount to the employer and the employer can then refund the amount to the employee, less applicable tax withholding.

If an employer's group health plan is fully-insured (generally, a plan in which benefits are paid by an insurer to which the employer pays premiums) it may be subject to nondiscrimination rules under the Protection and Affordable Care Act (PPACA). However, under IRS Notice 2011-1 fully-insured plans are not required to comply with these rules until after federal agencies issue further guidance.

For fully-insured plans, nondiscrimination penalties are imposed on the employer. The employer is assessed a penalty of $100 per day for each individual discriminated against and the plan is subject to a civil action to provide nondiscriminatory benefits. Because there has not yet been much guidance on this provision, until further guidance is issued, employers with fully-insured group health plans should consider providing additional severance in lieu of preferential post-termination health care benefits.

Outplacement assistance, referrals and reference letters may be included as separation benefits. Although these latter benefits may serve as adequate consideration for a release alone, they are much less likely to be considered adequate consideration than payment of some kind. If no payment is being made, employers should check state law to determine whether the particular benefit they desire to provide will constitute adequate consideration.

Section 409A (www.practicallaw.com/1-506-3280) of the IRC and its related regulations (Section 409A) apply to nonqualified deferred compensation. Because Section 409A defines nonqualified deferred compensation broadly, severance payments and benefits are subject to Section 409A, unless an exclusion applies. The provisions of the agreement assume that payments and benefits are excluded from Section 409A. To determine whether the severance payments and benefits are excluded from Section 409A, see Practice Note, Applying Section 409A to Severance Benefits (www.practicallaw.com/6-501-2702) and Section 409A Six-Month Delay, Short-term Deferral and Separation Pay Plan Analysis Flowcharts (www.practicallaw.com/3-501-9168).

If payments and benefits are instead subject to Section 409A, the payment provisions must comply with Section 409A's requirements, which include designation of a Section 409A-compliant payment date or payment schedule and a six-month delay for payments to specified employees (www.practicallaw.com/4-502-9987). For information on Section 409A's requirements, see Practice Note, Applying Section 409A to Severance Benefits: Severance Benefits Subject to Section 409A (www.practicallaw.com/6-501-2702) and Employee Benefits and Perks (www.practicallaw.com/6-501-2702). In this case, the agreement should also contain additional language addressing Section 409A. For model language, see sections (b) and (c) of Standard Clauses, Model Section 409A Employment Agreement Provisions (www.practicallaw.com/7-503-0263).

 

 2.2 The Employee understands, acknowledges and agrees that these benefits exceed what [he/she] is otherwise entitled to receive upon separation from employment, and that these benefits are in exchange for executing this Agreement. The Employee further acknowledges no entitlement to any additional payment or consideration not specifically referenced herein.

3. Release of Claims.   In exchange for the consideration provided in this Agreement, the Employee and [his/her] heirs, executors, administrators and assigns (collectively the "Releasors") forever waive, release and discharge the Employer Group from any and all claims, demands, causes of actions, fees, damages, liabilities and expenses (inclusive of attorneys' fees) of any kind whatsoever, whether known or unknown, that Employee has ever had against the Employer Group by reason of any actual or alleged act, omission, transaction, practice, conduct, occurrence or other matter up to and including the date of [his/her] execution of this Agreement, including, but not limited to (i) any claims under Title VII of the Civil Rights Act, as amended, the Americans with Disabilities Act, as amended, [the Family and Medical Leave Act, as amended,] [the Fair Labor Standards Act,] the Equal Pay Act, as amended, the Employee Retirement Income Security Act, as amended (with respect to unvested benefits), the Civil Rights Act of 1991, as amended, Section 1981 of U.S.C. Title 42, the Sarbanes-Oxley Act of 2002, as amended, the Worker Adjustment and Retraining Notification Act, as amended, [the Age Discrimination in Employment Act, as amended], [the Uniform Services Employment and Reemployment Rights Act, as amended,] [ALL STATE AND LOCAL STATUTES THAT MAY BE LEGALLY WAIVED THAT EMPLOYEES COULD BRING EMPLOYMENT CLAIMS UNDER, INCLUDING ANY STATE OR LOCAL ANTI-DISCRIMINATION STATUTE, WAGE AND HOUR STATUTE, LEAVE STATUTE, EQUAL PAY STATUTE AND WHISTLEBLOWER STATUTE] and/or any other Federal, state or local law (statutory, regulatory or otherwise) that may be legally waived and released and (ii) any tort and/or contract claims, including any claims of wrongful discharge, defamation, emotional distress, tortious interference with contract, invasion of privacy, nonphysical injury, personal injury or sickness or any other harm. However, this general release of claims excludes the filing of an administrative charge or complaint with the Equal Employment Opportunity Commission or other administrative agency, although the Employee waives any right to monetary relief related to such a charge. This general release of claims also excludes any claims made under state workers' compensation or unemployment laws, and/or any claims which cannot be waived by law. [The Employee specifically waives the protections of California Civil Code Section 1542, which states that "a general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor."]

Hide Note: Release of ClaimsNote: Release of Claims
3. Release of Claims
Release of Claims

For employers, this paragraph is the most important of the agreement because it represents the release of liability by the employee toward the employer for various employment law claims the employee could bring based on conduct occurring up to and including the date of the execution of the agreement. Claims arising after the execution of the agreement are not released by this agreement.

The release of claims paragraph is drafted broadly to protect employers against employee claims made under as many federal, state and local statutes as possible. This paragraph includes a broad collection of federal employment statutes that employees could bring claims under. The optional language also instructs the drafter to include applicable state and local statutes. For more information on state law requirements, see Employment Claims in Release Agreements: State Q&A Tool (www.practicallaw.com/9-505-9590).

Certain claims cannot be released subject to limited exceptions. For example, some employees take the position that claims under the Uniform Services Employment and Reemployment Rights Act (www.practicallaw.com/5-502-5644) (USERRA) cannot be waived (see Practice Note, Military Leave Law: Waiver of USERRA Rights (www.practicallaw.com/7-504-4849)). In addition, employees cannot waive certain claims under the Fair Labor Standards Act (www.practicallaw.com/5-501-9884) (FLSA) (see Practice Note, Defending Wage and Hour Collective Actions: Prohibition on Certain Compromises (www.practicallaw.com/9-504-1604)). Although employees may waive other claims under the FLSA, some jurisdictions hold that those claims can only be waived under supervision of the Department of Labor (www.practicallaw.com/2-501-6354) (DOL) or a court (see Practice Note, Defending Wage and Hour Collective Actions: Supervision Requirement (www.practicallaw.com/9-504-1604)).

Because only certain claims can be released, the release of USERRA, FLSA and Family and Medical Leave Act (www.practicallaw.com/7-502-3432) (FMLA) claims are included only as optional language above. In addition, claims for workers' compensation and unemployment benefits cannot be waived in certain states. Employers should check the law in their jurisdiction to determine any limitations on releasing these claims.

For employers with employees working remotely or in multiple locations, best practice is to list the specific employment claims for each state the employee has a connection to, for example, include state-specific employment claims for New York and New Jersey if an employee works for a New York employer from his New Jersey home. There are certain state law claims that should not be included in a release of claims. For more information, see Employment Claims in Release Agreements: State Q&A Tool (www.practicallaw.com/9-505-9590).

To increase the enforceability of the agreement if the release of a particular claim is deemed unenforceable, a severability clause is included in this agreement. To maximize the enforceability of the agreement, however, conservative employers should consider not including claims where enforcement is doubtful.

For separation and release of claims agreements involving departing employees who are 40 years of age or older, the Age Discrimination in Employment Act (www.practicallaw.com/2-501-7061) (ADEA) should be included in this release paragraph to prevent age discrimination claims under that statute. An amendment to the ADEA, the Older Workers Benefit Protection Act of 1990 (OWBPA), establishes certain prerequisites for a valid release of claims under the ADEA. For information about and sample language compliant with the OWBPA, see Drafting Note, Knowing and Voluntary Acknowledgement.

Agreements used in California should specifically waive the statutory protections of California Civil Code Section 1542. Unless the agreement states, with citation to Section 1542, that the employee is waiving unknown claims, the employee can retain the right to bring claims they did not know of at the time of signing the release (see, Casey v. Procter, 59 Cal.2d 97 (1963)Butler v. Vons Cos., 140 Cal.App.4th 943 (2006)).

 

4. [Restrictive Covenants.

(a) Confidentiality

The Employee understands and acknowledges that during the course of employment by the Employer, [he/she] has had access to and learned about confidential, secret and proprietary documents, materials and other information, in tangible and intangible form, of and relating to the Employer [Group] and its businesses [and existing and prospective customers, suppliers, investors and other associated third parties] ("Confidential Information"). The Employee further understands and acknowledges that this Confidential Information and the Employer's ability to reserve it for the exclusive knowledge and use of the Employer [Group] is of great competitive importance and commercial value to the Employer, and that improper use or disclosure of the Confidential Information by the Employee might cause the Employer to incur financial costs, loss of business advantage, liability under confidentiality agreements with third parties, civil damages and criminal penalties.

For purposes of this Agreement, Confidential Information includes, but is not limited to, all information not generally known to the public, in spoken, printed, electronic or any other form or medium, [relating directly or indirectly to:] [business processes,] [practices,] [methods,] [policies,] [plans,] [publications,] [documents,] [research,] [operations,] [services,] [strategies,] [techniques,] [agreements,] [contracts,] [terms of agreements,] [transactions,] [potential transactions,] [negotiations,] [pending negotiations,] [know-how,] [trade secrets,] [computer programs,] [computer software,] [applications,] [operating systems,] [software design,] [web design,] [work-in-process,] [databases,] [manuals,] [records,] [articles,] [systems,] [material,] [sources of material,] [supplier information,] [vendor information,] [financial information,] [results,] [accounting information,] [accounting records,] [legal information,] [marketing information,] [advertising information,] [pricing information,] [credit information,] [design information,] [payroll information,] [staffing information,] [personnel information,] [employee lists,] [supplier lists,] [vendor lists,] [developments,] [reports,] [internal controls,] [security procedures,] [graphics,] [drawings,] [sketches,] [market studies,] [sales information,] [revenue,] [costs,] [formulae,] [notes,] [communications,] [algorithms,] [product plans,] [designs,] [styles,] [models,] [ideas,] [audiovisual programs,] [inventions,] [unpublished patent applications,] [original works of authorship,] [discoveries,] [experimental processes,] [experimental results,] [specifications,] [customer information,] [customer lists,] [client information,] [client lists,] [manufacturing information,] [factory lists,] [distributor lists,] [and] [buyer lists] of the Employer [Group] or its businesses [or any existing or prospective customer, supplier, investor or other associated third party], or of any other person or entity that has entrusted information to the Employer in confidence.

The Employee understands that the above list is not exhaustive, and that Confidential Information also includes other information that is marked or otherwise identified as confidential or proprietary, or that would otherwise appear to a reasonable person to be confidential or proprietary in the context and circumstances in which the information is known or used.

The Employee understands and agrees that Confidential Information developed by [him/her] in the course of [his/her] employment by the Employer shall be subject to the terms and conditions of this Agreement as if the Employer furnished the same Confidential Information to the Employee in the first instance. Confidential Information shall not include information that is generally available to and known by the public at the time of disclosure to the Employee, provided that such disclosure is through no direct or indirect fault of the Employee or person(s) acting on the Employee's behalf.

(b) [Acknowledgment

The Employee understands that the nature of Employee's position has provided [him/her] access to and knowledge of Confidential Information and placed [him/her] in a position of trust and confidence with the Employer [Group]. The Employee understands and acknowledges that the intellectual or artistic [or] [OTHER] services [he/she] provided to the Employer [Group] are unique, special or extraordinary [because] [DESCRIBE UNIQUE, SPECIAL OR EXTRAORDINARY SERVICES].

The Employee further understands and acknowledges that the Employer [Group]'s ability to reserve these for the exclusive knowledge and use of the Employer [Group] is of great competitive importance and commercial value to the Employer [Group], and that improper use or disclosure by the Employee is likely to result in unfair or unlawful competitive activity.]

(c) [Disclosure and Use Restrictions

The Employee agrees and covenants: (i) to treat all Confidential Information as strictly confidential; (ii) not to directly or indirectly disclose, publish, communicate or make available Confidential Information, or allow it to be disclosed, published, communicated or made available, in whole or part, to any entity or person whatsoever (including other employees of the Employer [Group]) not having a need to know and authority to know and use the Confidential Information in connection with the business of the Employer [Group] and, in any event, not to anyone outside of the direct employ of the Employer [Group] except as required in the performance of any of the Employee's remaining authorized employment duties to the Employer [and only after execution of a confidentiality agreement by the third party with whom Confidential Information will be shared] [or with the prior consent of an authorized officer acting on behalf of the Employer [Group] in each instance] (and then, such disclosure shall be made only within the limits and to the extent of such duties or consent); and (iii) not to access or use any Confidential Information, and not to copy any documents, records, files, media or other resources containing any Confidential Information, or remove any such documents, records, files, media or other resources from the premises or control of the Employer [Group], except as required in the performance of any of the Employee's remaining authorized employment duties to the Employer or with the prior consent of an authorized officer acting on behalf of the Employer [Group] in each instance (and then, such disclosure shall be made only within the limits and to the extent of such duties or consent). Nothing herein shall be construed to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of a court of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed the extent of disclosure required by such law, regulation or order. The Employee shall promptly provide written notice of any such order to an authorized officer of the Employer [Group].]

(d) [Duration of Confidentiality Obligations

The Employee understands and acknowledges that [his/her] obligations under this Agreement with regard to any particular Confidential Information shall commence immediately and shall continue during and after [his/her] employment by the Employer until such time as such Confidential Information has become public knowledge other than as a result of the Employee's breach of this Agreement or breach by those acting in concert with the Employee or on the Employee's behalf[ and shall not continue longer than [TERM OF YEARS] from the Effective Date].]

Hide Note: Restrictive Covenants and AcknowledgmentNote: Restrictive Covenants and Acknowledgment
4.1 Restrictive Covenants and Acknowledgment
Restrictive Covenants and Acknowledgment

A Separation and Release of Claims Agreement presents an opportunity to create new restrictive covenants for departing employees, including non-competition, non-solicitation and confidentiality obligations. The above language should be used if an employer is binding an employee to restrictive covenants for the first time. If an employee is already bound to pre-existing non-compete, non-solicitation, confidentiality or other restrictive covenants that survive the end of employment, modify the Section 12 paragraph to include reference to these provisions as directed in Drafting Note, Entire Agreement.

States that authorize restrictive covenants, particularly non-competes, generally decline to enforce them if they are more restrictive than necessary to protect the legitimate business interests of the employer. As a result, employers should describe their legitimate business interest and their intent to protect it using restrictive covenants. For more information on non-compete agreements, see Practice Note, Non-compete Agreements with Employees (www.practicallaw.com/7-501-3409).

 

Confidential Information

The lengthy definition of confidential information and the requirement that the employee acknowledge its value help define the employer's legitimate business interest. Employers should carefully modify the paragraph that identifies the confidential information to be protected by the agreement according to the nature of the employer's business and industry. If the employer values a certain category of information and intends to protect it from disclosure or misuse, it should be listed in this paragraph. Although agreements of this type regularly refer to a long laundry list of protected information (and the agreement typically provides that the list is not exhaustive), the more narrowly tailored the list of information is to the employer's legitimate business needs, the more likely it will be regarded as a reasonable restriction, and therefore enforceable, by a court interpreting the agreement. When assessing which information should be designated as confidential, employers should consider:

  • What information gives the employer a competitive advantage?

  • What information if disclosed would harm the employer?

  • What information makes the employer's business model, products or services distinctive or unique?

  • Is there additional information specific to the employer's industry that should be included (for example, architectural plans for engineers, flavorings for food processors and fabric dyes for clothing manufacturers)?

Likewise, the lists of the employer's (or group's) relevant third-party associates (whose confidential information might be entrusted to the employer and therefore subject to the agreement) should be modified to fit the employer's business and industry. For example, the terms "clients," "patients" or "subscribers" might be substituted for the term "customers."

 

Disclosure and Use Restrictions

In practice, the effectiveness of the crucial disclosure and use restrictions above may hinge on what disclosures and uses are authorized by the employer (or group). Depending on characteristics of the employer's business organization and management structure, the nature of the individual employee's position and job responsibilities, and the importance of the particular confidential information at issue, authority may be granted on a more or less formal basis. For example, a bookkeeper may be authorized, as part of his regular job duties, to disclose certain sales figures to key vendors, but may be required to get specific authorization from an officer before disclosing customer lists to the same vendors (and authorization might be given verbally, by e-mail or in a formal memo, depending on the employer's management policies and procedures).

Employers should counsel management to keep these practical considerations in mind. Regardless of how employers ultimately decide to manage authorization for disclosure of information, they should consider creating an additional layer of protection by requiring that third parties (for example, customers, consultants, suppliers and other business associates) execute separate confidentiality agreements (also referred to as non-disclosure agreements or NDAs) before disclosing any valuable confidential information to them (see, Standard Document, Confidentiality Agreement: General (Mutual) (www.practicallaw.com/1-501-7108) and Practice Note, Confidentiality and Nondisclosure Agreements (www.practicallaw.com/7-501-7068)). The optional language above, "[and only after execution of a confidentiality agreement by the third party with whom Confidential Information will be shared] [or with the prior consent of an authorized officer acting on behalf of the Employer [Group] in each instance]" gives employers the opportunity to customize their approach to sharing confidential information with third parties.

 

Unique, Special or Extraordinary Services

It is good practice to include the unique, special or extraordinary services provision because employees who provide these services may be bound to a non-compete obligation even if they have limited or no access to confidential information. Using this clause gives employers another means to demonstrate the legitimate business purpose to be protected by the non-compete. Although not all employees provide "unique, special or extraordinary" services, it is nearly impossible to determine to a legal certainty what kinds of services do qualify and what kind do not without judicial review. Examples of employees providing unique, special or extraordinary services include:

  • Employees who serve as the public face of a company.

  • Employees who provide intellectual expertise.

  • A company's primary rainmaker.

  • An especially talented or marketable athlete, artist or musician.

If it is possible to identify the unique, special or extraordinary services offered by the employee, employers should use the optional language above to identify these services.

 

Duration of Confidentiality Obligations

Generally, time limits on the duration of a confidentiality agreement are not required for enforceability. For example, the District Court for the Northern District of Georgia declined to find a employee confidentiality agreement "unreasonable as a matter of law simply because [it] is not limited in time" (Duracell Inc. v. SW Consultants, Inc., 126 F.R.D. 571, 575 (N.D. Ga. 1989)). Most courts regard an agreement to maintain confidentiality as less burdensome on an employee than an agreement not to compete because preserving confidentiality does not restrict a former employee's ability to earn a living. As a result, an employee confidentiality agreement without a time limitation is regularly regarded by courts as reasonable and enforceable.

However, some courts may consider an agreement's duration when evaluating its reasonableness. For example, the US Court of Appeals for the Ninth Circuit (applying Pennsylvania law) considered the duration of the restriction when evaluating the reasonableness and enforceability of a confidentiality agreement, but enforced the restriction despite the lack of a time limit because the "limitation to confidential information contains the implicit temporal limitation that information may be disclosed when it ceases to be confidential" (Henry Hope X-Ray Prods., Inc. v. Marron Carrel, Inc., 674 F.2d 1336, 1342 (9th Cir. 1982)).

Although it is very rare for employers to include duration restrictions in employee confidentiality agreements, employers seeking to provide an extra layer of protection against an attack on enforceability can add the optional text: "[ and shall not continue longer than [TERM OF YEARS] from the Effective Date]." For additional information on duration of restrictions (specific to non-compete agreements, but relevant to confidentiality agreements as well), see Practice Note, Non-compete Agreements with Employees: Reasonableness of Duration (www.practicallaw.com/7-501-3409).

 

(e) [Non-Competition

Because of Employer[ Group]'s legitimate business interest as described herein and the good and valuable consideration offered to the Employee described herein, beginning on the last day of the Employee's employment with the Employer, for any reason or no reason and whether employment is terminated at the option of the Employee or the Employer [Group], the Employee agrees and covenants not to engage in Prohibited Activity within the [DESCRIBE SCOPE OF GEOGRAPHIC RESTRICTION AND/OR SUBSECTION OF INDUSTRY OR CUSTOMER LIST].

For purposes of this non-compete clause, "Prohibited Activity" is activity in which the Employee contributes [his/her] knowledge, directly or indirectly, in whole or in part, as an employee, employer, owner, operator, manager, advisor, consultant, agent, employee, partner, director, stockholder, officer, volunteer, intern or any other similar capacity to an entity engaged in the same or similar business as the Employer [Group], including those engaged in the business of [DESCRIPTION OF BUSINESS]. Prohibited Activity also includes activity that may require or inevitably require disclosure of trade secrets, proprietary information or Confidential Information.

The Employer [Group] regards as its primary, but not exclusive, competitors the following [LIST OF PRIMARY COMPETITORS].

Nothing herein shall prohibit Employee from purchasing or owning less than five percent (5%) of the publicly traded securities of any corporation, provided that such ownership represents a passive investment and that the Employee is not a controlling person of, or a member of a group that controls, such corporation.

This Section does not, in any way, restrict or impede the Employee from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation or order. The Employee shall promptly provide written notice of any such order to [AUTHORIZED OFFICER].]

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4.1 Non-competition
Non-competition

Prohibited Activity

A crucial element in any non-compete agreement is the definition of the type of post-employment activity prohibited. Because enforcement often hinges on whether the restriction is reasonably necessary to protect the employer's legitimate business interest, employers should not define prohibited activity more broadly than necessary to accomplish that purpose.

 

Geographic Scope/Business Parameters

Most non-compete agreements prohibit competitive activity within a defined geographic scope. Geographic scope may be a state, several states or a square mile radius. It should always be tailored to the legitimate needs of the company to maximize the potential for enforceability. For example, companies that conduct business in only one state should limit the geographic scope of the non-compete to that single state. Employers that conduct business in a larger geographic area may create correspondingly larger geographic non-compete requirements, but must be able to correlate the restriction to a legitimate business interest worth protecting.

Some employers, particularly those engaged in e-commerce, operate without regard to formal geographic limits. For those employers, it would be difficult to identify an appropriate geographic scope limitation. An alternative to geographic scope is to identify a limited set of business activities or customers that are off limits to a departing employee. These kinds of restrictions may also be used in conjunction with a nationwide US restriction to make a broad geographic restriction more narrow and more reasonable.

 

Duration of Restriction

Challenges to the reasonableness of noncompete restrictions regularly include claims that the restriction period is too long. Although it is impossible to create a bright line rule for all jurisdictions, as a general rule, restrictions of less than two years are more likely to be regarded as reasonable than restrictions of two years or more. For more information, see Practice Note, Non-compete Agreements with Employees: Drafting Note, State Law Specific to Non-compete Agreements (www.practicallaw.com/7-501-3409).

 

Payment During the Duration of the Restriction

Employers concerned about the enforceability of non-compete restrictions should consider paying the employee an additional amount during the duration of the restriction. Depending on the specific terms of the payments, including the amount and duration of the payments and whether an employer has the right to terminate the non-compete restriction and its payment obligations at any time, the payments may be subject to the restrictions of IRC Section 409A. The applicable payment provisions should be structured and drafted to ensure that the payments either comply with or are exempt from Section 409A. For more information on Section 409A, see Practice Note, Section 409A: Deferred Compensation Tax Rules: Overview (www.practicallaw.com/6-501-2009).

 

Voluntary Versus Involuntary Termination

The optional phrase above, "[for any reason or no reason and whether employment is terminated at the option of the Employee or the Employer [Group],]" describes the effect of termination on the non-compete restriction. Whether to use this phrase depends on state law. For terminations that are fair and lawful, most states do enforce non-competes that are drafted to be binding on the employee even after involuntary termination. However, some states do decline to enforce non-compete restrictions if the employment relationship ended because of an unfair termination or because of any involuntary termination at all.

For example, the District of Columbia and Missouri generally do not recognize any non-compete restrictions following any involuntary termination. Other states, for example, Arkansas, Georgia and Illinois, do enforce non-competes following only some involuntary terminations. States may decline to enforce a non-compete if the employee was terminated:

  • Without just cause.

  • Improperly or wrongfully.

  • In bad faith.

  • In breach of an employment contract.

Check state law to determine whether a non-compete will be enforced despite involuntary termination.

 

(f) [Non-Solicitation of Employees

The Employee agrees and covenants not to directly or indirectly solicit, hire, recruit, attempt to hire or recruit, or induce the termination of employment of any employee of the Employer [Group] during [TERM OF YEARS OR MONTHS], to run consecutively, beginning on the last day of the Employee's employment with the Employer.]

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4.1 Non-solicitation of Employees
Non-solicitation of Employees

Enforcement of non-solicitation of employee obligations, like non-competition obligations, depend largely on state law. As a rule, courts are less reluctant to enforce restrictions on solicitation of employees than restrictions on engaging in competitive activity generally. However, courts often assess non-competes and non-solicitation covenants by considering the same factors. For more information on these factors, see Practice Note, Non-compete Agreements with Employees: Creating a Non-compete (www.practicallaw.com/7-501-3409) and Drafting Note: Non-competition.

 

(g) [Non-Solicitation of Customers

The Employee understands and acknowledges that because of the Employee's experience with and relationship to the Employer [Group], [he/she] has had access to and learned about much or all of the Employer[ Group]'s customer information. "Customer Information" includes, but is not limited to, names, phone numbers, addresses, e-mail addresses, order history, order preferences, chain of command, pricing information and other information identifying facts and circumstances specific to the customer and relevant to [sales/services].

The Employee understands and acknowledges that loss of this customer relationship and/or goodwill will cause significant and irreparable harm.

The Employee agrees and covenants, during [TERM OF YEARS OR MONTHS], to run consecutively, beginning on the last day of the Employee's employment with the Employer, not to directly or indirectly solicit, contact (including but not limited to e-mail, regular mail, express mail, telephone, fax, and instant message), attempt to contact or meet with the Employer's current[, former or prospective] customers for purposes of offering or accepting goods or services similar to or competitive with those offered by the Employer.]

[This restriction shall only apply to:

  • Customers or prospective customers the Employee contacted in any way during the past [NUMBER OF MONTHS].

  • Customers about whom the Employee has trade secret or confidential information.

  • Customers who became customers during employment with the Employer.

  • Customers about whom the Employee has information that is not available publicly.]

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4.1 Non-solicitation of Customers
Non-solicitation of Customers

As is true with other restrictive covenants, enforcement of non-solicitation of customers restrictions are dependant on state law. Many courts regard solicitation of customers as a kind of competitive activity. Courts generally assess whether to enforce non-solicitation restrictive covenants by considering the same factors relevant to whether to enforce a non-compete. For more information on the factors relevant to non-compete enforcement, see Practice Note, Non-compete Agreements with Employees: Creating a Non-compete (www.practicallaw.com/7-501-3409) and Drafting Note: Non-competition.

The bracketed language in the non-solicitation of customers section allows for the option to create a more or less restrictive non-solicitation obligation. Employers can prohibit solicitation of only current customers or broaden the restriction to encompass former and prospective customers. Another opportunity for modifying restrictions is the option to cover only those customers the employee in question has contacted recently or has personal information about. These additional limitations promote enforcement of the restrictive covenant by reducing the burden on the departing employee. This optional language helps promote enforcement in jurisdictions that are particularly unfriendly to restrictive covenants in employment.

If needed for specific industries or companies, substitute the word "customer" for a more appropriate term, such as client, patient, subscriber or other term of art.

 

5. Knowing and Voluntary Acknowledgement.   Employee specifically agrees and acknowledges that: (a) Employee has read this Agreement in its entirety and understands all of its terms; (b) [Employee has been advised of and has availed [him/her]self of [his/her] right to consult with [his/her] attorney prior to executing this Agreement]; (c) Employee knowingly, freely and voluntarily assents to all of its terms and conditions including, without limitation, the waiver, release and covenants contained herein; Employee is executing this Agreement, including the waiver and release, in exchange for good and valuable consideration in addition to anything of value to which [he/she] is otherwise entitled; (d) Employee is not waiving or releasing rights or claims that may arise after [his/her] execution of this Agreement; and that (e) Employee understands that the waiver and release in this Agreement is being requested in connection with the cessation of [his/her] employment with [EMPLOYER NAME].

 [Employee further acknowledges that [he/she] has had [twenty-one (21)/forty-five (45)] days to consider the terms of this Agreement, although [he/she] may sign it sooner if desired. Further, Employee shall have an additional seven (7) days from the date on which [he/she] signs this Agreement to revoke consent to [his/her] release of claims under the ADEA by delivering notice of revocation to [INSERT NAME] at [EMPLOYER NAME], [EMPLOYER ADDRESS], before the end of such seven-day period. In the event of such revocation by Employee, [EMPLOYER NAME] shall have the option of treating this Agreement as null and void in its entirety.]

 This Agreement shall not become effective, until the [eighth (8th) day after/day the] Employee and [EMPLOYER NAME] execute this Agreement. Such date shall be the Effective Date of this Agreement. No payments due to the Employee hereunder shall be made or begin before the Effective Date.]

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Knowing and Voluntary Acknowledgement
Knowing and Voluntary Acknowledgement

This first paragraph of this section includes language applicable to employees of any ages designed to demonstrate that the employee's release of claims is knowing and voluntary.

The second paragraph is only applicable to employees aged 40 and older and is designed to ensure compliance with the Older Workers Benefit Protection Act of 1990 (OWBPA). However, many employers use OWBPA language regardless of whether the employee in question is aged 40 or older to promote enforceability.

For an ADEA claim release to be enforceable, the release must comply with the OWBPA, which requires the release to be knowing and voluntary. This means the release must at a minimum:

  • Be part of an agreement between the individual and the employer that is written in a manner calculated to be understood by the employee releasing it or the average individual eligible to participate.

  • Specifically refer to rights or claims under the ADEA.

  • Not waive the individual's rights or claims arising after the date the waiver is signed.

  • Waive the individual's rights or claims only in exchange for consideration not already owed to the individual (see Practice Note, Conducting Layoffs and Other Reductions in Force: Severance Packages or Plans (www.practicallaw.com/9-502-6665) and Layoffs and Reductions in Force Checklist: Severance Considerations (www.practicallaw.com/3-500-4341)).

  • Advises the individual in writing to consult with an attorney before signing the agreement.

  • Provide the employee at least 21 days to consider the agreement before signing and an additional seven days to revoke the agreement if the termination is not part of an exit incentive or other employment termination program (including group layoffs). If the termination is part of an exit incentive or other employment termination program (two or more employees), the employee must be provided at least 45 days to consider the agreement before signing and an additional seven days to revoke the agreement. In either case, the agreement is not effective or enforceable until after the expiration of the revocation period.

  • For an exit incentive or other employment termination program, include information about:

    • any class, unit or group of individuals included in the program;

    • any eligibility factors for the program;

    • any time limits applicable to such program;

    • job titles of all individuals eligible or selected for the program;

    • ages of all individuals eligible or selected for the program; and

    • ages of all individuals in the same job classification or organizational unit who are not eligible or selected for the program (no employee names should be included).

For a sample OWBPA disclosure notice for a group layoff, see Exhibit A, Older Workers Benefit Protection Act Disclosure Notice and its accompanying drafting note. For more information on valid discrimination waivers under federal law, see Understanding Waivers of Discrimination Claims in Employee Severance Agreements published by the Equal Employment Opportunity Commission (www.practicallaw.com/4-501-5853).

The optional language "This Agreement shall not become effective, until the [eighth (8th) day after/day the] Employee and [EMPLOYER NAME] execute this Agreement. Such date shall be the Effective Date of this Agreement" reflects the differences between the appropriate Effective Date for an employee aged 40 and older and one below age 40. The eighth day after the Employee executes the agreement is the first day following the seven-day revocation period an employee aged 40 or older is allowed. Because an employee below 40 is not provided this seven-day revocation period, an agreement with that employee becomes effective the day that it is executed.

 

6. [Cooperation.

 The parties agree that certain matters in which the Employee has been involved during [his/her] employment may necessitate the Employee's cooperation with the Employer in the future. Accordingly, for a period of [DAYS/MONTHS] following the Separation Date, to the extent reasonably requested by the Employer, the Employee shall cooperate with the Employer in connection with matters arising out of the Employee's service to the Employer; provided that, the Employer shall make reasonable efforts to minimize disruption of the Employee's other activities. The Employer shall reimburse the Employee for reasonable expenses incurred in connection with such cooperation and, to the extent that the Employee is required to spend [substantial time/more than [NUMBER OF HOURS/DAYS]] on such matters, the Employer shall compensate the Employee at an hourly rate [based on the Employee's base salary on the Separation Date].]

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Cooperation
Cooperation

The employer may wish to include a provision in the agreement requiring that following the employee's termination of employment, the employee will assist the company in any matters that relate to the employee's employment, such as the transition of the employee's job duties or knowledge about certain projects.

The employee may request:

  • A time limit on the period during which the employee must cooperate.

  • Compensation above and beyond expense reimbursement if the employee must spend a substantial amount of time on any matters.

If the employer requests a former employee's cooperation in a legal proceeding, the employer should consider:

  • How the employee's credibility will be affected if he is paid for his time testifying and preparing to testify.

  • Whether the employer will be perceived as trying to buy the employee's testimony if it pays the employee for his time spent on the litigation.

 

7. Non-Disparagement.   The Employee agrees and covenants that [he/she] will not at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments or statements concerning the Employer [Group] or its businesses, or any of its employees, officers[, and existing and prospective customers, suppliers, investors and other associated third parties], now or in the future.

 This Section does not, in any way, restrict or impede the Employee from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation or order. The Employee shall promptly provide written notice of any such order to [AUTHORIZED OFFICER].

8. Restrictive Covenant Remedies.   In the event of a breach or threatened breach by the Employee of any of the provisions of this Agreement, the Employee hereby consents and agrees that the Employer shall be entitled to seek, in addition to other available remedies, a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal remedies, monetary damages or other available forms of relief.

9. Successors and Assigns.

(a) Assignment by the Employer

To the extent permitted by state law, the Employer may assign this Agreement to any subsidiary or corporate affiliate [in the Employer Group or otherwise], or to any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Employer. This Agreement shall inure to the benefit of the Employer [Group] and permitted successors and assigns.

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9.1 Assignment by the Employer
Assignment by the Employer

Generally, contracts may be assigned by the employer if the contract creating the agreement specifically provides for assignment. However, there are states that impose restrictions on assignment. For example, Indiana requires employee consent for assignment even where it is specifically permitted by the contract (SDL Enters. v. DeReamer, 683 N.E.2d 1347, 1349-1350 (Ind. Ct. App. 1997)).

 

(b) No Assignment by the Employee

The Employee may not assign this Agreement or any part hereof. Any purported assignment by the Employee shall be null and void from the initial date of purported assignment.

10. [Arbitration.   Any dispute, controversy or claim arising out of or related to this Agreement or any breach of this agreement shall be submitted to and decided by binding arbitration. Arbitration shall be administered exclusively by [ARBITRATION ORGANIZATION] and shall be conducted consistent with the rules, regulations and requirements thereof as well as any requirements imposed by state law. Any arbitral award determination shall be final and binding upon the Parties.]

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10. Arbitration
Arbitration

An arbitration clause should only be included in the agreement if the employer wishes to resolve disputes in an arbitral forum. Before including an arbitration clause, review relevant state law to determine whether arbitration clauses in the context of employment are enforceable. Employers should also assess whether they would be solely responsible for all arbitration costs under state law. Some states impose restrictions on an employer's ability to contractually hold the employee responsible for arbitration fees. For more information on arbitration clauses, examples of arbitration organizations and relevant language suggested by those organizations, see the Arbitration Toolkit (www.practicallaw.com/7-501-0694) and PLC Arbitration, Practice Note, Standard recommended arbitration clauses (www.practicallaw.com/1-381-8470).

 

11. Governing Law: Jurisdiction and Venue.   This Agreement, for all purposes, shall be construed in accordance with the laws of [STATE] without regard to conflicts-of-law principles. Any action or proceeding by either of the Parties to enforce this Agreement shall be brought only in any state or federal court located in the state of [STATE][, county of [COUNTY]]. The Parties hereby irrevocably submit to the [non-]exclusive jurisdiction of such courts and waive the defense of inconvenient forum to the maintenance of any such action or proceeding in such venue.

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11. Governing Law: Jurisdiction and Venue
Governing Law: Jurisdiction and Venue

When choosing the state law to govern the agreement, employers should generally choose the law of a state to which the employment in question bears some relationship. At a minimum, there should be some reasonable basis for the choice of law. For example, the state in which the employer is located or where the job duties will be performed represent a reasonable basis for choosing the law of that state. If there is no reasonable basis for the choice, the governing law provision may not be enforceable. Other considerations for the employer, when selecting among governing state law choices for which there is a reasonable basis, include:

  • Employer-friendly law in one state over another.

  • The convenience to the employer of litigating disputes in a particular state.

  • Familiarity with a particular state's law.

For the most part, courts enforce choice of law provisions. However, in some instances, courts may disregard the parties' choice of law when both of the following are true:

  • Applying the laws of the chosen state would be contrary to a fundamental policy of another state that has a greater interest in a particular issue.

  • That state's law would have been applied in the absence of a choice of law provision.

If an employee works remotely or in multiple locations, a court may disregard the choice of law provision in favor of applying the law of another jurisdiction to which the parties have a connection. For more information on general principles on choice of law in contracts, see Practice Note, Choice of Law and Choice of Forum: Key Issues (www.practicallaw.com/7-509-6876).

When adapting this agreement, determine whether the employer prefers to seek enforcement in one jurisdiction exclusively or to allow for some flexibility in enforcement jurisdictions (in which case, include the optional "non-" in the bracketed language above). In addition, if the employer prefers enforcement in the courts of a specific county within a state, include the bracketed language with reference to the county of choice. Otherwise, omit the optional county language.

 

12. Entire Agreement.   Unless specifically provided herein, this Agreement contains all the understandings and representations between the Employee and the Employer [Group] pertaining to the subject matter hereof and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter. The Parties mutually agree that the Agreement can be specifically enforced in court and can be cited as evidence in legal proceedings alleging breach of the Agreement. [In the event of any inconsistency between the statements in the body of this Agreement and [NAME OF OTHER AGREEMENTS WITH EMPLOYEE], the statements in the body of this Agreement shall control.] OR [Nothing herein modifies, supersedes, voids or otherwise alters the following pre-existing contractual obligation: [INSERT TEXT OF OBLIGATION TO PRESERVE WITH REFERENCE TO AGREEMENT NAME, EXECUTION DATE AND SECTION NUMBER].]

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12. Entire Agreement
Entire Agreement

The employer should review any and all existing agreements between the employee and the employer to ensure that no other contractual obligations govern the subject matter of this agreement. To the extent that an existing agreement addresses topics covered by this agreement (for example, an employment agreement or a confidentiality agreement), this section of the agreement should be modified to make specific reference to potentially inconsistent provisions in other agreements, and to clarify which provision should control. If the employer wishes to maintain that the provisions of this agreement should take precedence, the first optional clause can be used. If the employer wishes to maintain that the provisions of a different agreement should take precedence, the second optional clause can be used.

 

13. Modification and Waiver.   No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing and signed by the Employee and by [POSITION NAME] of the Employer. No waiver by either of the Parties of any breach by the other party hereto of any condition or provision of this Agreement to be performed by the other party hereto shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time, nor shall the failure of or delay by either of the Parties in exercising any right, power or privilege hereunder operate as a waiver thereof to preclude any other or further exercise thereof or the exercise of any other such right, power or privilege.

14. [Severability.   Should any provision of this Agreement be held by a court of competent jurisdiction to be enforceable only if modified, or if any portion of this Agreement shall be held as unenforceable and thus stricken, such holding shall not affect the validity of the remainder of this Agreement, the balance of which shall continue to be binding upon the Parties with any such modification to become a part hereof and treated as though originally set forth in this Agreement.

 The Parties further agree that any such court is expressly authorized to modify any such unenforceable provision of this Agreement in lieu of severing such unenforceable provision from this Agreement in its entirety, whether by rewriting the offending provision, deleting any or all of the offending provision, adding additional language to this Agreement or by making such other modifications as it deems warranted to carry out the intent and agreement of the Parties as embodied herein to the maximum extent permitted by law.

 The Parties expressly agree that this Agreement as so modified by the court shall be binding upon and enforceable against each of them. In any event, should one or more of the provisions of this Agreement be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and if such provision or provisions are not modified as provided above, this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had not been set forth herein.]

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14. Severability
Severability

Some states may impose limitations on modification or reformation (often referred to as blue penciling (www.practicallaw.com/4-502-1062)) of agreements that restrict the activities of employees. Employers should exercise particular care in drafting separation and release of claims agreements in jurisdictions that do not authorize blue penciling because the agreement will be voided in its entirety rather than modified and enforced if it contains unlawful provisions.

 

15. Captions.   Captions and headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the caption or heading of any section or paragraph.

16. Counterparts.   This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

17. [Tolling.   Should the Employee violate any of the terms of the restrictive covenant obligations articulated herein, the obligation at issue will run from the first date on which the Employee ceases to be in violation of such obligation.]

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17. Tolling
Tolling

A tolling provision adds an extra layer of protection to an employer in the event that an employee breaches their non-compete obligations. It does so by suspending the start date for the restrictive period until after the employee has stopped violating the contract. By suspending the start date of the obligation, it extends the duration of the non-compete restriction. This is a particularly useful provision where non-compete agreements are included or referenced in separation and release of claims agreements because the duration of the restricted period is subject to rigorous judicial review. Because it extends the length of the non-compete obligation, it may be looked on harshly by judges and juries evaluating the reasonableness of the duration of the restriction.

 

18. [Attorneys' Fees.   Should the Employee breach any of the terms of the restrictive covenants obligations [articulated/referenced] herein, to the extent authorized by state law, the Employee will be responsible for payment of all reasonable attorneys' fees and costs that Employer incurred in the course of enforcing the terms of the Agreement, including demonstrating the existence of a breach and any other contract enforcement efforts.]

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18. Attorneys' Fees
Attorneys' Fees

Where restrictive covenants are included or referenced in separation and release of claims agreements, an attorneys' fees provision should be included to give the employer the option to defray the cost of enforcement, which may signal to an employee that the cost of violation is too steep to be worthwhile. If no attorneys' fees provision is included, in most states, the parties must pay for their own attorneys' fees regardless of the outcome of the case.

 

19. Section 409A.   This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (Section 409A) or an exemption thereunder and shall be construed and administered in accordance with Section 409A. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon a termination of employment shall only be made upon a "separation from service" under Section 409A. Notwithstanding the foregoing, the [EMPLOYER NAME] makes no representations that the payments and benefits provided under this Agreement comply with Section 409A and in no event shall [EMPLOYER NAME] be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Employee on account of non-compliance with Section 409A.

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19. Section 409A
Section 409A

This paragraph helps ensure that the payments and benefits under the agreement are provided consistent with the requirements of IRC Section 409A. Although this provision is not required, because of the complexity of Section 409A's compliance requirements it is a best practice to include this type of provision. For more information on the requirements of Section 409A, see Practice Note Section 409A: Deferred Compensation Tax Rules: Overview (www.practicallaw.com/6-501-2009).

 

20. [Notice.   When Employee's employment with Employer [Group] terminates, Employee agrees to notify any subsequent employer of the restrictive covenants section [contained/referenced] in this Agreement. In addition, Employee authorizes Employer [Group] to provide a copy of the restrictive covenants section of this Agreement to third parties, including but not limited to, Employee's subsequent, anticipated or possible future employer.]

Hide Note: NoticeNote: Notice
20. Notice
Notice

This optional clause creates an additional disincentive for an employee to engage in competitive activity, but may create additional evidence of the employer's moving from reasonable requirements toward unduly burdensome requirements on the former employee. For information on state law distinctions in non-compete drafting and enforcement concerning voluntary versus involuntary termination of employment, see Drafting Note: Non-Competition, Voluntary versus Involuntary Termination.

 

21. Acknowledgment of Full Understanding.   EMPLOYEE ACKNOWLEDGES AND AGREES THAT [HE/SHE] HAS FULLY READ, UNDERSTANDS AND VOLUNTARILY ENTERS INTO THIS AGREEMENT. EMPLOYEE ACKNOWLEDGES AND AGREES THAT [HE/SHE] HAS HAD AN OPPORTUNITY TO ASK QUESTIONS AND CONSULT WITH AN ATTORNEY OF [HIS/HER] CHOICE BEFORE SIGNING THIS AGREEMENT. EMPLOYEE FURTHER ACKNOWLEDGES THAT [HIS/HER] SIGNATURE BELOW IS AN AGREEMENT TO RELEASE [EMPLOYER NAME] FROM ANY AND ALL CLAIMS.

 IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Execution Date above.

EMPLOYER NAME]

By_____________________

Name: [NAME OF AUTHORIZED OFFICER]

Title: [TITLE OF AUTHORIZED OFFICER]

EMPLOYEE

Signature:____________________________

Print Name: ___________________________

OLDER WORKERS BENEFIT PROTECTION ACT DISCLOSURE NOTICE

The Older Workers Benefit Protection Act (OWBPA) requires that employers provide specific information to employees who are 40 years of age or older and asked to execute a release of claims in connection with a group termination program. This document provides this information.

The class, unit, or group of individuals covered by the program includes [ALL EMPLOYEES/SPECIFIC EMPLOYEE GROUP] in the [OFFICE/DEPARTMENT/PLANT/AREA], who will be [terminated/offered an exit incentive] [ANY TIME LIMITS APPLICABLE TO THE PROGRAM]. [ALL EMPLOYEES/SPECIFIC EMPLOYEE GROUP] in the [OFFICE/DEPARTMENT/PLANT/AREA] are eligible for the program. [Eligibility factors include [ANY ELIGIBILITY FACTORS].] The following is a list of the ages and job titles of employees who were and were not selected for termination and offered consideration for signing a waiver:

Hide Note: Older Workers Benefit Protection Act Disclosure NoticeNote: Older Workers Benefit Protection Act Disclosure Notice
Older Workers Benefit Protection Act Disclosure Notice
Older Workers Benefit Protection Act Disclosure Notice

The OWBPA requires that release agreements for terminations resulting from group layoffs include certain additional information about the group of employees considered for termination. The purpose of the disclosures is to allow individuals selected for layoff to determine whether older employees are disproportionately adversely impacted.

These requirements apply to:

  • Exit incentive programs. Voluntary programs where an employer offers two or more employees (for example, older employees or those in specific organizational units or job functions) additional consideration to persuade them to voluntarily resign and sign a waiver.

  • Other employment termination programs. Any program where two or more employees are involuntarily terminated and offered additional consideration in exchange for signing a release of claims against the employer.

It is safest to assume that a program exists if an employer offers additional consideration or an incentive to leave to more than one employee in exchange for signing a release of claims.

Information required for a compliant OWBPA disclosure notice includes:

  • Any class, unit or group of individuals included in the program.

  • Any eligibility factors for the program.

  • Any time limits applicable to that program.

  • Job titles of all individuals eligible or selected for the program.

  • Ages of all individuals eligible or selected for the program.

  • Ages of all individuals in the same job classification or organizational unit who are not eligible or selected for the program (no employee names should be included).

The Code of Federal Regulations provides some additional guidance about how decisional units may be described. For example:

  • Facility-wide: 10% of the employees in the Springfield facility will be terminated within the next ten days (the decisional unit is the Springfield facility).

  • Division-wide: Fifteen of the employees in the Computer Division will be terminated in December (the decisional unit is the Computer Division).

  • Department-wide: One-half of the workers in the Keyboard Department of the Computer Division will be terminated in December (the decisional unit is the Keyboard Department).

  • Reporting: 10% of the employees who report to the Vice President for Sales, wherever the employees are located, will be terminated immediately (the decisional unit is all employees reporting to the Vice President for Sales).

  • Job category: 10% of all accountants, wherever the employees are located, will be terminated next week (the decisional unit is all accountants).

This information must be presented in writing and a manner easily understood by the average employee eligible to participate in the program. The age of each person eligible and not eligible for the program should be specifically included (for example, 45). An age range (for example, 40-45) does not satisfy this requirement. The names of eligible and ineligible individuals, however, are not necessary and should not be included to preserve individual employees' privacy. Where job categories or titles include sub-categories, the information presented should reflect those sub-categories.

If both voluntary and involuntary terminations are at issue, they should be noted as voluntary or involuntary. For more information about complying with OWBPA disclosure notice requirements, see Section 1625.22 of Title 29 of the Code of Federal Regulations.

 

Job Title

Age

No. Selected

No. Not Selected

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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