Retention Agreements v. Severance Agreements

The use of retention agreements is becoming more popular with employers during periods of insecurity, including mergers and acquisitions. The primary point of retention agreements is the employer pays for the employee to stay. In other words, the employee agrees to remain as an employee for an agreed upon period and, in return, the employer agrees to pay a specified sum of money.

When it comes to a release or waiver of claims, there is no reason for them in retention agreements. The retention agreement is an agreement to stay employed in exchange for a bonus payment. It is not the appropriate document for releases or waivers.

In contrast, a severance agreement includes a release or waiver of claims. The employee agrees to release the employer from any claims and/or lawsuits in exchange for a specified amount of money and/or benefits. In other words, the release of claims is what the employer is gaining from the bargain.

Retention agreements and severance agreements are two very different contracts between an employee and employer. They each can benefit the employee monetarily, but they obligate the employee in different ways.

It should be noted that a single contract can contain retention and severance provisions. In other words, the employer can offer a certain sum for the employee to stay employed for a set amount of time, but also agree to pay an additional sum if the employee is laid-off during that period of time in exchange for a release of claims.

It should be noted that if the retention and severance provisions are contained in the same contract, the employee should receive separate compensation in each provision. In other words, make sure the retention and the severance are two separate agreements within the same contract. An employee should not release any claims for the retention, only for the severance.

The takeaway? True retention agreements do not contain releases or waivers of claims. If you are presented with a hybrid contract containing both retention and severance provisions, confer with an attorney to make sure you understand what the contract gives and takes away from you. Remember, the titles used in contracts do not matter. It is important that an employee does not sign a retention agreement containing waivers and releases that is a disguised severance agreement.

Negotiating and drafting retention agreements is Mailly Law’s primary area of practice. We have years of experience and understand the complexities involved. Let us fight for your rights and help obtain a contract that is most beneficial to you, Schedule a consultation now.