Know the Law: Separation Agreement from Company

Photo of Linda Johnson
Linda S. Johnson
Director, Litigation Department and Vice Chair of Education Law Group
Published: Union Leader
November 16, 2009

Q:  I work for a local manufacturing company.  I was just notified that due to the slow economy, I am being laid off.  My supervisor gave me a written separation agreement under which the company is offering me severance pay in exchange for signing the agreement which includes a noncompetition provision, a release and a nondisclosure agreement.  Does the fact that the company is offering me money in exchange for a release mean that the company has done something illegal?   How do I know if I should sign the agreement?

A:  The fact that a company is offering severance pay in exchange for signing a release agreement does not necessarily mean that the company has done anything wrong.  A company sometimes chooses to offer severance to assist an employee in transitioning to new employment.

There is no legal requirement that a company pay severance to a terminated employee unless it is a contractual obligation between the employee and the company.  However, if a company does make an offer of severance, it is quite common to ask an employee to sign a release.  The company wants to buy some peace of mind and avoid possible litigation or claim against the company. Even when an employee signs such an agreement, however, New Hampshire law does not allow a wage or unemployment claim to be released.  Likewise, worker’s compensation rights cannot be released except upon approval by the New Hampshire Department of Labor.  Overall, by signing the release agreement, an employee is otherwise waiving any and all claims for many kinds of actions such as wrongful termination, discrimination, and breach of contract.

A nondisclosure provision typically seeks to protect proprietary and confidential information of the company and its customers that is not generally available to the public.  Courts will only enforce a noncompetition agreement that is reasonable as to its terms, such as geographic area and length of time that the noncompete will run following termination. One to two years is often upheld by the courts.

An employee will have to decide if the receipt of the severance pay is compensation enough to justify signing a noncompetition agreement.  If not, and if the employee is not otherwise bound to a noncompetition agreement pursuant to another agreement he or she signed with a company, an employee might decide that the opportunity for future employment is more important than some short term severance.

Whether or not to sign a separation agreement in exchange for a release and other agreements can be a complicated decision for any employee.  An employee may wish to seek legal advice to evaluate the decision.  A one hour meeting with an attorney who practices in the area of employment law can often provide an employee with helpful information in evaluating whether to sign the agreement.