A chief nurse officer (CNO) asked whether severance agreements are required when an executive leaves their position, either voluntarily or involuntarily.
She noted that a colleague at another facility received a severance package when her position was eliminated after a hospital merger and wondered what such agreements typically include.
Overview of severance agreements
A severance agreement is a contract between an employer and an employee leaving the organization. It outlines the rights and responsibilities of both parties regarding the termination of employment.
Severance agreements are not mandatory unless:
- The employee has a contract specifying severance upon termination.
- A union contract requires one.
- Company or institutional policies provide for one.
- Mass layoffs occur.
Since severance agreements are generally optional, employers offering severance pay seek assurances from departing employees to protect the organization from potential legal issues.
Severance agreement details vary based on factors, including length of employment, the employee’s accomplishments, and the employer’s policies. However, typical provisions include:
- A summary of the employee’s contributions and accomplishments
- The amount and method of severance pay (lump sum or periodic payments) and its duration
- Payment details for earned bonuses, sick pay, vacation pay, and expense reimbursement
- Any release of legal claims from both parties that are agreed to (also called waivers)
- Mutual declaration that neither party admits to any liability that resulted in the termination of employment
- Exceptions to the release of legal claims, such as workers’ compensation claims, right of either party to sue for a breach of the severance agreement
- Continuation of benefits, including professional liability coverage and health insurance
- Guidelines for handling job references
Questionable provisions
Two standard provisions in severance agreements have faced legal scrutiny:
- Confidentiality and non-disparagement clauses: In a 2023 decision, the National Labor Relations Board (NLRB) ruled that these clauses in severance agreements violated employees’ rights under Section 7(a) of the National Labor Relations Act (NLRA). This section protects union and non-union employees, including the right to engage in concerted (mutual) activity.
Restricting a former employee from speaking with others (including former coworkers) about the agreement or expressing opinions about their employer is seen as a violation of the protection of employee mutual activity. The ruling was appealed, but the appellate court didn’t decide on this issue, leaving the legality of these clauses uncertain. - Non-compete agreement: These clauses restrict former employees from taking certain jobs or starting businesses that could compete with their soon-to-be former employer. They typically define the type of roles restricted, the geographic scope, and the duration of the restriction. Read about how three nurses challenged a covenant imposed on them here.
In April 2024, the Federal Trade Commission (FTC) issued a final rule banning non-compete clauses, arguing that they prohibit workers from changing jobs and establishing new businesses. However, the FTC rule has been the subject of several federal court cases with mixed rulings. As a result, until there is a final determination of the ban — which will most likely have to be decided by the U.S. Supreme Court — non-compete clauses remain a legally uncertain provision in severance agreements. Additionally, some states have started limiting the use of these clauses.
The Older Workers Benefit Protection Act
The CNO mentioned that she was 53 years old, which makes her eligible for protections under the Older Workers Benefit Protection Act (OWBPA), which applies to workers aged 40 and older.
Among other protections, OWBPA regulates waivers of legal claims in severance agreements and requires that waivers:
- Be written in clear and understandable language.
- Provide the employee with at least 21 days to consider the agreement.
- Advise the employee to seek legal counsel before signing.
- Inform the employee of their right to revoke the agreement within a specified period after signing.
Guidelines on severance agreements
If you’re leaving a position voluntarily or involuntarily, ask whether a severance agreement is available. Even if you’ve never heard of an agreement being offered in your role, remember that confidentiality clauses may have prevented others from discussing their agreements in the past.
Consulting a nurse attorney or an employment attorney is crucial. A lawyer will carefully review the agreement, suggest necessary changes, and negotiate on your behalf. You should also seek advice from a financial adviser since how severance is paid (e.g., lump sum versus periodic payments) can impact your taxes.
For example, a lump sum may not be in your best interest, whereas periodic payments may work better for you.
Additionally, ask your attorney about eligibility for unemployment insurance benefits. If the agreement doesn’t explicitly prohibit unemployment claims, you may qualify. However, benefits aren’t payable under certain circumstances under some state laws (e.g., terminated for cause).
Leaving a job, whether by choice or not, can be difficult. While you may feel capable of managing the transition alone, the legal issues involved are complex. Given the ongoing legal developments surrounding severance agreements, seeking legal counsel ensures that your exit is in your best interest and that you can pursue new opportunities without unnecessary restrictions.
