Employers often find it difficult to justify, practically or emotionally, paying severance to an employee being terminated for cause. After all, employers ask, why compensate and reward a worker who broke the rules? It may be easier when the separation is a layoff, yet even under these circumstances, the company’s financial condition may constrain its ability to offer money to a separating employee, getting nothing but goodwill in return.

This Employment Law Bulletin briefly discusses severance and its primary justification: obtaining a release of any future employment law-based claims. We explain why best practices dictate employers set emotions aside in order to secure the protection provided by a release in exchange for a severance payment. We also discuss important issues related to the drafting and implementation of an enforceable severance agreement.

Why Offer Severance

There are sundry reasons an employer may want to offer severance to a separating employee: to reward a worker for years of loyalty; to cushion the blow of an unexpected layoff; to maintain goodwill in the community; or to preserve standing as a competitive, quality employer in the industry.

These are all sound reasons. They explain why employers might consider offering severance in many instances. But the single best reason why employers should offer severance to every terminated employee (i.e., one who is not leaving by her own volition) is the protection that a severance payment, combined with a well-drafted severance agreement, provides against a future claim or lawsuit.

Let’s begin by defining “severance.” In order to support a binding agreement in which the employee waives any claims, the severance must be compensation to which the employee wasn’t already entitled by virtue of her employment. Many employers we work with are surprised to learn that severance does not need to equal several months’ or even several weeks’ pay. This can be a particularly helpful point when considering offering severance to an employee terminated for lying or theft. The investment can be minimal. The peace purchased for merely a few hundred dollars (or less!) is always well worth the investment.

What Severance Buys You

Provided the agreement is properly drafted, signed and otherwise enforceable, the severance payment purchases a promise by the separating employee that she will not bring any claim or lawsuit, in a court or with a government agency, arising out of the employment relationship. Our typical California severance agreement expressly protects against seventeen (17) separate common law causes of action, as well as claims that could potentially be brought under eighteen (18) separate state and federal statutory schemes and regulations.

In fact, the only employment-related claim that cannot be expressly released by way of a severance agreement is one for unpaid wages, which can include reimbursement of expenses, overtime and waiting time penalties. Perhaps most importantly, most reasonably competent lawyers will abandon a claim, regardless of its apparent merits, where a potential client has signed an enforceable severance agreement with the former employer. In this way, for an investment of as little as a few hundred dollars, an employer can avoid incurring attorney’s fees and costs fighting a spurious claim.

The Elements of an Enforceable Severance Agreement

We cannot overstate the importance of having a knowledgeable employment law attorney draft your severance agreement. A severance agreement is a contract. In addition to pitfalls common to every type of contract, there are crucial drafting considerations unique to a severance agreement. This is particularly true if the separating employee is over 40-years-old. An agreement waiving any claims under the Older Workers’ Benefit Protection Act (“OWBPA”) must meet eight (8) statutory requirements, including providing the separating worker a 21-45 day period within which to consider the Agreement before signing it. Even then, the employee has seven (7) days to revoke the agreement. If the employer pays the severance before the expiration of the 7-day period, and the employee revokes the agreement, she may keep the payment and the employer is without recourse to recoup the funds!

In addition to an explicit waiver of any claims that could be brought under federal, state, common law, county, city or local ordinances, a severance agreement can and should provide other protections. Among these, we recommend clauses requiring confidentiality of the severance and prohibiting future disparagement of the employer and its management. It is generally a good idea also to include a clause in which the employee agrees not to apply for employment at any future time; this protects against future claims of discrimination in hiring.

The employee should never be pressured to sign the severance agreement, or to sign it “right away,” as this can provide a duress defense which may undermine the effectiveness of the agreement. It is also a good idea to include a severability clause so that, if an issue arises, a court can later “sever” out any portions of the agreement that are unlawful, rather than rendering the entire agreement unenforceable. A merger clause is also advisable, to prevent a terminated employee from claiming additional terms that are not included on the agreement itself.

Conclusion

California employers should always consider offering a severance when terminating an employee, provided the employee signs a well-drafted severance agreement waiving any claims arising out of the employment relationship. The severance payment need not be sizeable. However, it is crucial that the agreement be drafted properly. Employers with lingering questions should not hesitate to contact their experienced employment law counsel.

Sun Tsu wrote that “Every battle is won before it’s ever fought.”

This adage is never more true than in the world of civil and criminal litigation. I say this because our strategic decisions and actions before the jury is impaneled and opening statements begin often play a bigger role in the outcome of a case than any single event that occurs during the trial itself.

I have previously written about using pretrial motions in limine to exclude or limit evidence. In this post I want to talk about severance and bifurcation as a sound strategy under certain circumstances.

First, a brief explanation of the procedure. Severance or bifucation refers to an order by the judge, in cases involving multiple issues or claims, that separate trials will be held of the different issues. Severance in the Federal courts is governed by Rule 42 of the Federal Rule of Civil Procedure (FRCP). Rule 42(b) provides:

“(b) Separate Trials. For convenience, to avoid prejudice, or to expedite and economize, the court may order a separate trial of one or more separate issues, claims, crossclaims, counterclaims, or third-party claims. When ordering a separate trial, the court must preserve any federal right to a jury trial.”

In my civil practice, defendants sometimes seek bifurcation–or separate trials–of the issues of liability and damages. The wisdom of this is apparent if we consider a personal injury case involving  unusually horrific damages. If the defendant is successful in obtaining bifurcation of liability from damages, it may be possible to exclude evidence of the horrific damages during the trial of the liability phase. After all, damages evidence is irrelevant to whether the defendant caused the plaintiff’s injuries. This can be huge if evidence of the plaintiff’s horrific damages will engender extreme sympathy which might cause the jury to look beyond the liability evidence and return a verdict fueled by emotion.

Another example could be if there is a unique affirmative defense that could be tried separately and, if successful, will greatly shorten the duration (and attendant costs) of the trial. If, for example, the defendant believes it has a strong statute of limitations defense which relies on the testimony of just a few witnesses, the judge can order this issue be tried first and separately from all other issues. If the defense prevails, it saves the court and the parties from the time and expense of trying the entire case only to reach the same outcome.

There are other situations in which separate trials could powerfully impact the outcome of the case. I recently read the account of one of Edward Bennett Williams’s famous trials, defending former U.S. Treasury Secretary John B. Connally. Connally was accused of accepting two $5,000 payments from a lobbyist for the Associated Milk Producers “as a thank-you for helping bring about higher price supports for milk after the Secretary of Agriculture had initially refused to raise them.” Emily Couric, The Trial Lawyers (St. Martin’s Press, 1988) at 331. In addition to accepting the “gratuities,” Connally was also charged with conspiring to obstruct justice and with perjury in connection with Connally’s conduct  during the government’s investigation of the payments.

Among the strategies employed by Williams was “a decision to narrow the courtroom debate. By focusing on a single issue, [he] . . . reasoned, he could more easily prove his client’s innocence.” Id. at 335. Williams thus moved and persuaded the court to sever the counts related to taking the $10,000 in gratuities from the counts relating to obstruction of justice and perjury. Williams argued that “if the government could indict you for perjury for denying the thing that they were accusing you of, in every case they could call the accused before the grand jury, and when he denied that he committed the offense, they just add perjury counts.” Id. at 338. The court agreed and granted the motion for severance.

The net effect was to preclude the prosecution from even telling the jury about the obstruction and perjury charges. When Williams ultimately won the trial of the gratuity counts against Connally, the “defeated” prosecution dismissed the remaining counts for obstruction of justice and perjury. Years later, the prosecutor, Frank Tuerkheimer, commented that:

“The most result-oriented thing Williams did in the Connally case . . . was the pretrial motion to sever the counts. It was a major tactical win with tremendous consequences for the outcome.” Id. at 338.

A motion to bifurcate is not appropriate in every case. In fact, it’s probably not appropriate in most cases. But it is a strategy to at least consider, particularly if a successful motion can create a huge tactical advantage such as it did for Williams and his client.