Retention Agreement vs. Severance Agreement …. and Releases: Part 1

An increasing number of employers are using retention agreements to retain their key employees during times of transition or insecurity. At its most basic level, a retention agreement is simply the employer saying, “if you stay, we will pay.” In other words, the employer agrees to pay the employee a certain sum of money if the employee agrees to remain with the company for a specified amount of time.

It is important to note that retention contracts do not contain releases or waivers. These provisions belong in severance agreements. A severance contract focuses on the employee releasing the employer from potential claims or lawsuits in exchange for a certain sum of money from the employer.

A retention agreement and a severance agreement are two very different contracts that work to accomplish very different goals. However, they both should be taken very seriously because they each contain benefits and detriments. If your contract does appear to include both retention and release provisions, make sure your attorney helps you review the agreement carefully and don’t let the titles of the provisions influence you. The document may be titled “Retention Agreement,” but that doesn’t mean it doesn’t have release and waiver agreements within it.

You may be wondering what the big deal is regarding a retention agreement including release of claims language. What makes it worrisome is that the agreement may be a disguised severance agreement. If the employer has obtained the waiver of claims, then what is the employer’s incentive to give the employee severance payments or benefits? Nothing, because the employer has what it needs already!

Besides hiring an experienced attorney, there are other things you can do to protect yourself when reviewing a retention agreement. For these tips,

read our next blog titled “Retention Agreement vs. Severance Agreement: Where do Releases Fit in? Part 2.”

If you need representation during negotiations of a retention agreement in a merger or acquisition of your company, we can help. Our experienced attorneys understand the importance of having your best interests as our sole focus. Schedule a consultation today!