10 Most Overlooked Executive Separation Agreement Clauses – Part 2

In Part 1 I shared with you five commonly overlooked terms in executive separation agreements. Here are five more.

6. Release Timing. If the executive is excused from performing work or coming to the office well before her last day of employment, the company may want to have the executive sign an agreement close to the day the executive is notified about her separation because the company will remain exposed to liability for the period of time between the executive’s signing the separation agreement and her actual last day. In addition, I recommend having the executive sign a second release on her actual last day of employment – and make signing that second release contingent upon receiving any post-termination severance benefits.

7. Post-Termination Restrictive Covenants and the Integration Clause. Many agreements contain a boilerplate integration provision, reciting that the agreement is the entire agreement between the parties and that the executive is not relying on anything not contained in the written document. If the executive has signed a prior agreement containing restrictive covenants which are intended to survive termination of the executive’s employment, such a general integration clause could void the prior post-termination restrictive covenants. An alternative would be to include a provision in the separation agreement that ratifies the executive’s obligations in the prior agreement and incorporates that agreement into the separation agreement. Also, if there are specific lists of customers or types of information in the prior restrictive covenant agreement, be sure to take the opportunity in the separation agreement to update such lists to better reflect the customers and types of information the executive has access to closer to the time of termination, rather than relying on the initial list at the commencement of his employment, which is when many executives tend to sign restrictive covenant agreements.

8. Non-Disparagement and Confidentiality. When an executive is separating from a company, emotions are often running high. As a result, both parties are concerned about what the other party will say about them after the executive has left. As in-house counsel may be aware, non-disparagement and confidentiality provisions often are not worth the paper they are written on because a breach is hard to prove, and damages arising from that breach are harder still to prove. That being said, and keeping in mind the challenges enforcement poses, one should not overlook the scope of the non-disparagement and confidentiality obligations required of an executive – and quite possibly of the company. For example, if the company agrees to a “mutual” non-disparagement provision, it is best to narrow the scope to agree that only select individuals will be required not to disparage the executive. Also, consider defining what “disparaging” means, as many confuse “defame” with “disparage.” Finally, if possible, limit the company’s obligation to instructing select individuals not to disparage the executive, as this will reduce the company’s obligations to police those individuals. Our prior post on Drafting a Practical and Enforceable Non-Disparagement Provision provides additional helpful tips.

9. Choice of Law and Forum. This clause is often buried in the boilerplate or “miscellaneous” sections of most agreements. Yet, since state laws govern many aspects of employment relationships and each state’s laws vary from one another, this provision may be critical to the enforcement of agreement terms. For example, if the separation agreement recites California law, certain post-termination restrictions may be unlawful and any assignment of inventions may require recitation of specific statutory language to ensure that ownership is properly waived. Further, even where there is a choice of law or forum selection clause, a state’s court may decide that certain public policy concerns trump the parties’ agreed-upon choice of law or forum selection. In-house counsel, therefore, should consider (a) where the executive resides; (b) where the company’s headquarters are located; and (c) where the executive performed her work. While companies commonly look to the law of the state in which it was incorporated, such laws may not be the most favorable to the company (and also may have no connection to the parties, except that the company was organized under such laws). As a result, a court may ignore such agreed-upon law selection. Similarly, if the forum selected has no or little connection to where the parties conducted business, it likely will be found to be an improper venue for addressing any disputes between the parties. Thus, not only is it important to ensure that the choice of law and forum selection provisions are related to the parties, but also that the choice of law and forum are strategically selected based on the state’s laws most favorable to the company based on the potential types of claims that may arise.

10. Dispute Resolution. In recent years, arbitration provisions in employment agreements have been subject to greater scrutiny in connection with waiver of an executive’s rights to pursue actions before government agencies, such as those handling discrimination, leaves of absence, and wage and hour claims. Arbitration and other non-litigation dispute resolution methods, however, still can be very beneficial to companies where it is important to the company to keep the dispute and resolution private. Companies should carefully consider the benefit of private dispute resolution. And, if a company wants to require an executive to arbitrate any claims that arise from the separation agreement, it should consider the rules to be applied to such arbitration and the types of claims that can be included. For example, if discrimination claims are to be arbitrated, the arbitration provisions should explicitly say so. Similarly, if claims must be arbitrated individually and not as class or collective action, this too should be specifically stated in the agreement.

Although it is tempting to quickly recycle a form agreement when preparing for the separation of an executive, it behooves in-house counsel to carefully review their separation agreements, particularly these 10 most overlooked clauses, to ensure that what they intend is actually reflected in the agreement.