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Employment & Severance Agreements

DO NOT SIGN A EMPLOYMENT OR SEVERANCE AGREEMENT WITHOUT

FIRST CONSULTING WITH AN ATTORNEY

Prospective employees, or those who have recently found themselves without a job, are often handed a document and are told to sign it, either as a condition of employment or as a condition of obtaining a severance package.

There are generally multiple components to an employment or severance agreement; however, there are a few which warrant consideration and consultation with an attorney. In particular, employees must be aware of non-compete agreements, non-solicitation agreements, and general release language.

Non-Compete Agreements

One of the most common provisions of an employment agreement or severance package—indeed, often the primary reason for the agreement—is what is known as a non-compete agreement. This agreement is exactly what it sounds like: by signing it the employee agrees that he or she will not compete with the employer for a specified period of time following their employment.

NON-COMPETE AGREEMENTS MUST BE LIMITED

Courts do not generally like non-compete agreements, since their primary function is to limit the ability of an individual to work. That being said, courts do permit non-compete agreements that are sufficiently limited in scope and duration. What does this mean? It means that if you are forced to sign a non-compete agreement that requires that you not compete with your employer for five years anywhere in the country, it is very likely that this agreement will be found to be unenforceable. If, however, you sign an agreement that requires that for a period of 18 months following your departure from the company you refrain from competing with the company within a thirty mile radius, this is much more likely to be enforced.

Non-compete agreements generally apply primarily when an employee quits a job, the theory being that a company cannot terminate an employee then try to prevent them from working for a competitor. This is not always the case however, and employees should not rely on this possibility when considering the implications of a non-compete agreement.

NON-SOLICITATION AGREEMENTS

Non-solicitation agreements are becoming more common than non-compete agreements. These essentially say that the employee will not solicit customers or other employees of the employer for a given period of time following the termination of employment. As with non-compete agreements, courts will typically look to the scope and duration of non-solicitation agreements, and generally an agreement in the 18 month/30 mile range will be enforced.

WHAT HAPPENS IF I BREACH A NON-COMPETE OR NON-SOLICITATION AGREEMENT?

Violations of non-compete or non-solicitation agreements can, on occasion, result in significant damages to the employee. Of these damages, one of the most severe is the possibility of having to pay the attorneys' fees of the company for having to enforce the agreement. There is language to this effect in nearly every agreement, so it is imperative that the employee know what he/she is signing and/or potentially violating, before it is too late.

RELEASE LANGUAGE

The single most common basis for a severance agreement is the language included in the agreement waiving the employee's right to bring any lawsuits against the employer arising out of the employment. Employers, especially large ones, do not like uncertainty, and the possibility of a former employee suing them for discrimination (for example) does not work for them. So it is quite common that an employer who is laying off an employee (or group of employees) will offer a severance package, which will provide the employee with some sort of parting gift, in exchange for an agreement by the employee not to sue the employer.

Be aware, releases in severance agreements are generally enforceable, so it is very important for an employee who receives this type of agreement to have it reviewed by an attorney before signing in order to avoid the potential of giving up rights to a claim that they may have.

At D'Orazio Peterson we have substantial experience drafting, reviewing, negotiating and challenging, where necessary, employment and severance agreements. If you have received an employment or severance agreement and need to speak with an attorney, contact us today at 518-308-8339.

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