Sealing Worker Silence: Effective Post-Employment Agreements

By Maatman, Gerald L., Jr. | Risk Management, January 1997 | Go to article overview
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Sealing Worker Silence: Effective Post-Employment Agreements


Maatman, Gerald L., Jr., Risk Management


Employers can face a number of exposures when employees depart. If a terminated worker is disgruntled, he or she can attempt to disparage the firm to customers, clients and remaining employees. Workers who depart voluntarily can also harm a company by joining a competitor, soliciting other employees to leave or attempting to parlay the know how gained from their previous employment into their own business. Regardless of the circumstances, it behooves an employer to consider whether these exposures can be reduced through the use of a post employment silence agreement.

One of the most common concerns employers attempt to address through such agreements is unfair competition by ex-employees. The legal rights and remedies associated with this issue are very complex. Civil relief can include damages or injunctions, and disputes can even lead to criminal proceedings. Depending on what a former employee did and when the conduct occurred, any number of legal principles can come into play, and the filing of multiple lawsuits in disparate jurisdictions is not uncommon.

An employer can avoid many of these problems by requiring an employee to sign an agreement at the beginning of his or her employment. The most common agreements require an employee to acknowledge the company's ownership of patents, trade secrets and other proprietary information. In addition, if an employer believes that a worker's abilities or knowledge could benefit a rival organization, a written agreement prohibiting competition for a specific period of time after the cessation of employment is essential.

When considering the need for post-employment agreements, a company should first decide which employees or groups of employees are likely to pose the greatest threat as potential competitors. Courts cast an especially suspicious eye on noncompete agreements when employers require the entire work force to sign a boilerplate document. To protect the employer's interests, care should be taken to limit agreements only to select employees.

Termination Releases

In an environment where claims brought by terminated employees continue to escalate, companies should consider whether it is in their interest to obtain a release of liability from a departing employee at the time of dismissal. A release is simply a shorthand legal term for a written contract between a company and a departing employee--generally an agreement in which the employee waives any legal claims in return for a monetary payment. A release is only valid if consideration is provided to the employee. In this context, consideration means that the employer has given the departing employee something of value--which is not limited to money--that the company had no legal obligation to provide. Employers have many options regarding the types of consideration that can be negotiated with workers to obtain a valid release of liability. These items can include:

Severance pay--In return for a liability release, the company can offer to pay departing employees above and beyond the amount they are owed in their final paychecks. This is usually the most common form of consideration for many employees.

Continuation of health insurance--Under the federal Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), an employer is dutybound in most circumstances to provide a departing employee with the opportunity to purchase replacement health insurance coverage for up to 18 months. Since an employer is not required under COBRA to pay the premium, a company can provide consideration by agreeing to pay insurance premiums on behalf of the employee for any period of time between one month and 18 months.

Letters of reference--Because employers are not obligated to provide letters of reference in most states, such a letter can be a form of consideration.

Outplacement or relocation assistance--When employees are terminated, they rarely have a strategy for returning to the job market.

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