We've all heard the stories about employees negotiating amazing severance packages when a company downsizes or no longer needs an employee's skill set. However, there are several elements employers need to be aware of when drafting said severance agreements. Below are five considerations that all human resource managers should consider before asking an employee to sign on the dotted line.

1. One size does not fit all

Under the Older Workers Benefit Protection Act (OWBPA), if an employee is 40 or above, any severance agreement must contain specific language advising employees of their rights, including advising the employee that they have the right to speak to a lawyer. Moreover, the employee must be provided with a right to rescind the agreement, and, therefore, there is a waiting period before the agreement becomes effective and severance paid.

If the termination is being entered into as part of a larger reduction in workforce, the employee must also be provided certain information. Consult with your attorney for the specific language that should be included whenever an employee is 40 or above.

2. Stopping the negatives

While it may be tempting to add language to the agreement that would work in preventing the employee from speaking negatively about your business, employers should tread lightly. Such clauses do not and cannot prevent the person from filing a charge with a government agency like the EEOC, or from participating in governmental investigations or proceedings. Employers should clearly state that the restriction does not prevent the employee from doing these things now or in the future.

3. Consideration rule

In order to have a valid and enforceable severance agreement, adequate consideration is required. This means that there must be a benefit to the employee for the agreement — something that they wouldn't otherwise be entitled to. Money or benefits that the employee has already earned (i.e. earned vacation time/pay) cannot satisfy the adequate consideration requirement. The value given must be more than what was normally offered to them during their employment.

4. You're fired... for good!

In some instances, employers may want to include a no-rehire provision, providing that the employee is not eligible for and cannot be rehired by the company. However, these types of provisions are not looked upon positively by the EEOC. You should consult with counsel before incorporating this type of a provision into your agreement.

5. When in doubt, seek counsel

As with any type of employment agreement, the devil is often in the details that get overlooked. State and federal laws frequently change, so beware of old, form and "off-the-shelf" severance agreements that you can find online. In some instances, very specific wording can also be required in order to prevent unwanted litigation, so work with a skilled employment attorney to ensure that the agreements you have created will hold up in a court of law.

Originally published in the Phoenix Business Journal on July 1, 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.