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Employers Beware...Sloppily Drafted Severance Agreements May Not Release All Claims by the Former Employee

The economy does not have to be bad a company to incorporate severance agreements into its employment policies. Severance agreements are important for a variety of reasons regardless of the business climate. Certainly there are the goodwill aspects of offering severance payments to former employees who have provided years of valuable and loyal service to an employer. However, the single most valuable aspects of severance agreements are (a) the inclusion of broad, full and final releases covering any legal claims the former employee otherwise may have considered bringing against the former employer for unlawful discrimination, harassment, and other claims, and (b) non-compete covenants or, in cases where a non-compete agreement is already in place, provisions can be included in the severance agreement that expands the coverage of the existing restrictions.

When drafting the release language, careful attention needs to be taken to broadly include all claims that the employer desires to be released. Certain employment related claims are governed by statutory waiting period requirements, and the failure to follow the statutory procedures will render the agreement invalid. In addition, limiting language such "the released claims consist of and are limited to any and all Claims that in any way relate to: (i) employment of the Employee with Company, or the termination thereof, or claims for compensation, bonuses, commissions, lost wages, or unused accrued vacation or sick pay," would not serve to release the Employer from tort claims and other claims that may not specifically relate to the employment relationship. In fact, a recent Florida appellate case held that this specific language did not constitute a release of a claim for tortious interference brought by the former employee against the former employer.

The time to avoid costly mistakes is when the employment relationship is being terminated and severance is being offered. There is not going back to correct mistakes so careful attention should be taken to adequately address all issues in a severance agreement.