Entrepreneur

5 things to include in a separation agreement

(Editor’s note: Curtis Smolar is a partner at Ropers Majeski Kohn & Bentley. He submitted this column to VentureBeat.)

A reader asks: A former employee is going on FaceBook, threatening to sue us, making negative and untrue statements about things she claimed happened at our company while she was there—what can we do?Answer: This is one of those situations where an ounce of prevention is worth a ton of cure.  By fashioning a strong separation agreement, you can prevent bad-mouthing former employees from posting negative comments about your company, spreading trade secrets, suing you and/or doing other things to hurt your company.

A separation agreement can save you the headaches and potential liability of a former employee smearing your company’s name on Facebook or other social media platforms. Know, however, that separation agreements quickly fall into the realm of highly specialized legal instruments.  Therefore, you should consult a legal professional to draft your separation agreement, which will take into consideration the specific state and federal laws that may be applicable.

That said, here are five things you probably want to include:

Release of all claims – When an employee leaves, always include a release of all claims in the separation agreement.  The purpose of this provision is very basic and critically important: to protect you from additional expenditures of time and money resulting from further claims. At a small company where there is not a lot of money, this may be the difference between success and failure.

The release should cover any and all unknown claims, since a general release may not be sufficient.

Non-disparagement agreement – One solution to prevent an employee from bad mouthing your company may be to have the departing employee sign a separation agreement with a non-disparagment agreement, which should:

  • Clearly define “disparagement”
  • Be broad enough to include statements which may not arise to the legal definition of defamation
  • Be a material element of the entire separation agreement
  • Include a clause noting that employees will face an injunction should they violate the agreement.

You may also wish to include a liquidated damages provision.  Be aware, however, that overly aggressive provisions will heighten the risk that a court may decline to enforce the agreement on the ground that it unconscionable.

Agreement not to apply for another job – Often, employees who are leaving realize that they are precluded from suing an employer because of a release they signed while at the company.  A clever lawyer may instruct a former employee to re-apply for the job, so as to be denied employment and thereby to set up a new cause of action against the former employer.

To preclude this possibility, include a clause in the separation agreement that says that the former employee will not re-apply employment.  State clearly that this provision is material to the separation agreement.

Confidentiality/trade secret and proprietary invention agreement – In a previous column, I discussed the advantages of confidentiality agreements, trade secret and Proprietary Information Agreements.

In a separation agreement, it is imperative to include these clauses – and they   should survive any other challenge to the agreement.  The employee should also acknowledge that an injunction is a proper remedy for a breach of the agreement.

Additional payment for the separation agreement – For a separation agreement to be enforceable, it needs what is called “additional consideration.”  This means that you cannot pay an employee simply what she is owed to the last day of employment.  Instead, you have to make an additional payment.

Startup owners: Got a legal question about your business? Submit it in the comments below or email Curtis directly. It could end up in an upcoming “Ask the Attorney” column.

Disclaimer: This “Ask the Attorney” post discusses general legal issues, but it does not constitute legal advice in any respect.  No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  VentureBeat, the author and the author’s firm expressly disclaim all liability in respect of any actions taken or not taken based on any contents of this post.


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