Protecting Executive Compensation at Time of Separation: There is No Such Thing as “Boilerplate”
Typically, an executive separating from employment is asked to sign a severance agreement in exchange for severance. Severance agreements may include myriad terms – such as post-employment work restrictions, confidentiality, non-disclosure and non-disparagement covenants, and, almost always, a release of legal claims.
Many executives, having no interest in suing their former employer, skim over the release of legal claims, considering it nothing more than “boilerplate.” That can be a costly mistake.
In the recent Massachusetts Appeals Court case of MacDonald v. Jenzabar, Inc., an executive who signed a release of claims was found to have waived his other-wise viable post-termination equity rights. Although the executive asserted that such outcome was unintended by the parties, the Court was unmoved.
Applying common law principles, the Court found that the language of the severance agreement was unambiguous and, therefore, evidence outside the agreement could not be considered. The language on which the Court relied for its holding was both that of the release (“… you agree to… release… the ‘Release Parties’ from any and all claims… of any nature whatsoever….”) and that of the “integration clause” (“[t]his Agreement …. terminates … all other oral and written agreements ….”).
What was missing from the MacDonald severance agreement were the exclusions that executives’ counsel usually insist be added. For example, if it is the intent of the parties, the severance agreement should include language to the effect that nothing in it – in the release or elsewhere – is or is intended to be a waiver or limitation on the executive’s rights (1) under equity plans, awards and/or agreements,(2) under retirement plans, polices and/or agreements, (3) under deferred compensation plans, awards and/or agreements, (4) to defense, indemnification and contribution, (5) under ERISA-governed benefit plans and/or policies, (6) to COBRA benefits, and/or (7) to apply for and receive unemployment benefits and other rights that cannot be waived as a matter of law.
Needless to say, the list of exceptions is also not “boilerplate.” Rather, the list is case-specific. So, for example, in some situations, an executive may be intentionally waiving some post-termination rights (such as in exchange for additional severance). In other situations, the parties may embed in the exclusions clarification as to specific rights (such as the date on which a deferred compensation payment is due).
BOTTOM LINE FOR THE SEPARATING EXECUTIVE: Before signing a severance agreement, retain counsel to review it and your situation. Be mindful of your post-employment rights and do not waive them inadvertently. There is no such thing as boilerplate.