READING THE FINE PRINT IN SEVERANCE AGREEMENTS (including Non-Compete Agreement clauses)


March 15, 2024

 

By:  Shane C. Sidebottom, Esq.

Many employers often offer severance agreements to employees that have been notified of an employment separation or pending layoff.  In general, employees are not entitled to severance pay when they are separated from their employment, but employers find that severance agreements are often a great benefit to the employer for several reasons.

First, severance agreements often allow the employer to obtain a clean break from their employee.  While the employee may receive a few extra payments, in exchange, the employer usually requires the employee to sign a voluntary release of any liability for any wrongful actions the employer may have committed.  In order to receive additional compensation under the severance agreement, the employee is often required to sign a waiver and release of any rights the employee may have to pursue a known or unknown legal claim in the future against the employer.

Second, the employer may also acquire a contractual guarantee that protects their confidential information or customer base.  Employers sometimes have enforceable penalty clauses in an agreement they can exercise if they deem that a former employee breached confidentiality after they left the employer. The enforcement provisions against a breaching employee are often very disadvantage to the employee and may even require the employee to reimburse the employer for the employer’s attorney fees.

Finally, it is also not an uncommon practice for an employer to include a non-compete agreement within a severance agreement.  Non-compete agreements are enforceable in Kentucky so long as the employee receives consideration (such as severance pay) for signing the agreement.  When considering the validity of the terms of the non-compete agreement, a court will review whether the restraint on an employee’s future employment is necessary for the protection of the business and that the restraints put on an employee’s ability to work are reasonable.  Kentucky courts have continuously found that reasonably termed non-compete agreements that restrict a former employee’s ability to work in certain industries are valid and enforceable, and can often last for several years.

Before signing any severance agreement, it is important to read the entire agreement and consider how that agreement may impact future employment decisions.  A modest lump sum payment may appear as a great benefit, but that should be weighed against the agreement’s effect on your future legal rights and employment opportunities.

This Blog is not legal advice and is not intended to be legal advice.  Should you have any questions regarding the subject matter, please contact Ziegler & Schneider, P.S.C., (859) 426-1300, for additional information.

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