When an employment relationship ends, a well-written severance agreement can give both you and your employee peace of mind. But using a generic template or an outdated form can create more problems than it solves.
Courts in Pennsylvania are now very strict about vague language in legal documents. If your agreement limits an employee’s legal rights too much, a judge might throw the whole document out. To protect your company, make sure your forms follow current state and federal laws. Custom agreements are much more effective than generic ones.
One size does not fit all
Many businesses use the same severance template for years. Some assume that if a legal document worked once, it will work again. In Pennsylvania, this is a risky assumption. When the court invalidates your entire agreement, you may have already paid out severance funds. You may not receive the legal protections you expected in return.
Here are three common pitfalls that can cause a court to scrutinize the document:
- Non-compete clauses: FTC rules and strict Pennsylvania common law requirements render most non-compete clauses in severance agreements unenforceable. If you must have non-compete clauses, they must protect a legitimate business interest and have reasonable restrictions.
- General releases: Most agreements include a release of claims. However, you cannot ask employees to give up certain legal rights. For example, you usually cannot waive future workers’ compensation claims.
- Non-disparagement clauses: Under NLRB decisions such as McLaren Macomb, overly broad severance terms may be unlawful. Employers generally cannot offer agreements that stop non-supervisory employees from discussing working conditions. Doing so can violate federal labor law.
Certain provisions, especially vague or ambiguous ones, can invite legal challenges.
Actions and protections
Employers should check their severance documents often to avoid legal issues. Do not use a “one-size-fits-all” form for every person leaving the company. Instead, think about the employee’s specific role. A manager may need a very different agreement than a regular staff member.
Consider consulting legal counsel when updating your severance agreements. The cost of this preventive measure is a worthwhile investment to avoid the disruption of civil litigation.
