Employee separation agreements should be carefully constructed to comply with tightening federal laws and to reduce an employee's likelihood to seek some level of retribution. As regulators strive to ensure more protections for whistleblowers, separation agreements should be clear and in accordance with the law.
Here are three guidelines to consider.
1. Separation Agreements Should Be Clear
Employee separation agreements are contracts that employees sign when their employment has ended. These agreements offer severance pay to the employee, and they usually relinquish rights to sue. Many employers have used standardized documents for years. But ongoing changes in federal regulations and increased enforcement should encourage them to revisit their agreements.
According to Stoel Rives LLP, the Equal Employment Opportunity Commission (EEOC) has sued several businesses for overly expansive agreements. In two cases, the agency alleged the agreements constituted a "pattern or practice" of denying employees their statutory rights. Stoel Rives LLP reports that the EEOC has hinted at this before in its 2012-2016 Strategic Enforcement Plan, and while many organizations may regard the enforcement as nothing more than a "politically-motivated fad," organizations should still reevaluate their agreements for safety's sake.
2. Separation Agreements Can't Impede an Employee's Right to Be Truthful
According to the Securities and Exchange Commission (SEC), the Dodd Frank Act of 2011 amended Rule 21F-17 to the Security Exchange Act of 1934. The rule was designed to protect whistleblowers. It prohibits any action to hinder someone from communicating with the SEC about law violations. Scrutiny and use of the rule in recent years has grown beyond large financial institutions to businesses of any size, in any sector.
Regulators have been scrutinizing other employee documents in addition to separation agreements. Corporate Compliance Insights reports that the rule should be encompassing enough to apply to all employer confidentiality agreements. While it's lawful for an employer to address EEOC discrimination claims, your organization could be running afoul by trying to limit an employee's right to cooperate with such investigations. While in the past some employers have used wide-reaching language that could be read to mean employees can't cooperate with investigators, the SEC Office of the Whistleblower has been closely watching for similar strategies by employers.
3. Separation Agreements Should Maintain Compliance
To do your best to ensure compliance, employers should consider creating agreements that avoid legal jargon and are easy to understand. The agreement should explicitly state what's confidential and what's fair game. Additionally, your business should review organizational documents and limit requests for confidentiality.
Perhaps consider including a simple disclaimer in every agreement stating that nothing shall prohibit employees from providing truthful information to government or regulatory organizations. If you're still concerned about a suit from the SEC or EEOC, know that simplifying severance agreements will only bring clarity. "Certainly don't respond by adding numerous additional provisions to your agreements," global law firm DLA Piper advises. "Now is the time to subtract, streamline and specify."
To guard your organization's safety and protect it from legal retribution, financial leaders should work with their HR leadership to simplify separation agreements and verify that they are updated to cover the various regulatory nuances.
SIGN UP FOR THE BOOST NEWSLETTER