Are Separation Agreements a Good Idea?

Susie was a pretty good employee when she came to work. The problem was that she did not come to work all that often. Her absences and late occurrences were increasing and her reasons were increasingly flimsy.

  • My dog got sick and I had to take him to the vet.
  • I was on my way to work and my car broke down.
  • I don’t feel good today.
  • I think I’m coming down with something.
  • I hurt my back yesterday when I was moving some furniture.
  • I locked myself out of my house and am waiting for a locksmith.
  • I lost my car keys.
  • I had to go to the Emergency Room last night.

So, her long suffering supervisor, Nice Nancy, decided that it was time to make a change and began to make plans to dismiss Susie. One of her ideas was to have a separation agreement with her that would release the company from a law suit, so she started looking into separation agreements and here are some of the things she found out about them.

On the positive side, if an employee signs a separation agreement, the likelihood of a lawsuit is may be reduced – not eliminated, but reduced.

The employee must be provided with some kind of consideration to induce him or her to sign the agreement. Consideration is sometimes a certain amount of pay, usually called severance pay, usually 2-6 weeks.

On the negative side, the agreement must be written just as the multiple employment regulations require, which results in a rather lengthy agreement of about 6 pages. Plus, in most cases, the employee has 21 days to decide whether to sign it and another 7 days to revoke it. Nancy thought that this was a long time and could give the employee an opportunity to change her mind or otherwise cause trouble.

At one point, Nancy thought she would make this an oral agreement with good will on both sides. After all, she had known Susie a long time and they grew up in the same town. But then Nancy remembered Yogi Berra’s advice that “An oral agreement is not worth the paper it’s printed on.” She thought it was possible that Susie would take the severance pay, agree orally not to sue, but then sue anyway. She remembered an old management consultant’s advice, “You can get into just as much trouble being too good to employees as you can otherwise.”

Nancy then thought she would take the initiative personally and write up a brief separation agreement which she and Susie would sign. But then she realized that if the document she wrote did not meet the specific standards in every case, it probably would not stand up to legal scrutiny and could be challenged. She also found out that the National Labor Relations Board was beginning to limit the confidentiality and non-disparagement elements of a separation agreement and the EEOC was tightening its restrictions, also.

So Nancy decided that the whole situation was getting complicated and if she were going to use a separation agreement, it would have to be drafted by an attorney. On the other hand, thought Nancy, I know I have complied with all of the employee regulations, I have done nothing wrong and I have Susie’s absences and lateness instances fully documented, along with her written warnings. So why do I need a separation agreement at all? She realized that a separation agreement might be good in some cases, but with regard to Susie, it might be best to let her go with no separation agreement. So she called Susie into her office and relayed the news — “Susie, you’ve missed too much time and we’re going to have to make a change and today is your last day.” Susie didn’t like it, she pushed back a little, but ultimately went on her way.

The moral of the story is that if you have solid grounds for dismissal, and if you’ve fully documented everything, a separation agreement may not be the best idea and it could be problematic in some situations. On the other hand, if the dismissal is not as clear, or if the dismissal involves a high level supervisor, manager or executive, a separation agreement may be an important part of the dismissal process. In those cases, an attorney should draft the separation agreement.

Mike Willis, Senior Vice President Has These Comments

Most HR advisory experts will always tout the three most important words when addressing employee disciplinary matters: “Document, Document, Document!” If supervisors and managers would just document the employee’s issues as they occur, and apply progressive discipline (verbal counseling, written warning, and then final warning) prior to termination, in most cases employees will terminate themselves. For the life of me I don’t understand some leader’s reluctance to follow this simple but extremely effective advice.

Usually, employees will cease and desist whatever infraction they are committing (attendance, tardiness, not following company rules, insubordination, etc.) once they realize they are being written up and a case is being made for their employment termination. Those who don’t “get the message” ultimately find themselves out the door, wishing they had corrected their misbehavior. In states where “Employment At Will” prevails, this is a less bumpy process to incorporate into practice, since you don’t always need a hard reason for termination, as long as the termination does not violate the employment regulations.

In my opinion, separation agreements can be effective tools when an employee has a performance problem that prevents him or her from being successful at work. The employee may not have demonstrated behavioral problems or violated company rules but, for whatever reason, just doesn’t measure up to the requirements of the job. Personal problems brought in to the workplace, lack of required skills, or general performance issues (continual mistakes, relationship issues with peers/bosses, or poor job fit) are typical reasons for when a separation agreement might be a good idea.

There’s no “one size fits all” when it comes to employee terminations. Obviously, some offenses call for immediate dismissal, such as gross misconduct, violation of “zero” tolerance policies, and other serious violations of policy. Documenting the employee’s performance issues is essential and an attorney should be consulted before drawing up a separation agreement.

Dan Ragan, Senior Vice President Has These Comments

I have recommended separation agreements on rare occasions over the years, particularly when you have a senior employee who is no longer “working out” and is also in some sort of protected group like those in Title VII, ADA, or Age. The individual may be a victim of the Peter Principle, which observes that people in a hierarchy tend to rise to “a level of incompetence.” A person with good performance on the job will likely be promoted to the next level and will continue to rise up the ladder and ultimately reach the point where he or she no longer performs at a satisfactory level.

If an employee is stealing from you, you’re probably not going to do a separation agreement. But in many terminations, the reasons are not clear cut or well documented. A separation agreement can be a nice way to sort of shake hands and move on with the relationship and can be a vehicle to have a somewhat amicable separation even if the employee doesn’t really deserve it. It structures the departure to allow an employee to “save face” and a way for the organization to mitigate risk. On the other hand, if a dismissed employee is going to be mad at you, there’s really nothing you can do about it and all the severance pay in the world won’t make a difference.

Additionally, a severance agreement must include “consideration,” such as some kind of severance pay. Consideration is a key element of a separation agreement contract. Without consideration, a severance agreement may not survive a challenge. The key question is whether the individual will sign the agreement. What will you do if he or she won’t? The bottom line is that separation agreements have a number of important purposes, and not one size fits all.

Sissy Egan, VP/Director of Operations Has These Comments

Separation agreements have their place in the termination process in order to communicate to the employee regarding benefits, unemployment eligibility and references when the individual departs. Employers should consider applicable state specific regulations on final payment of wages and entitlement of accrued Paid Time Off (PTO) or earned sick leave. This document should be finalized by an attorney in order to stand up to a legal challenge if necessary.

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