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The Severance Agreement

An executive I spoke with recently lost his job.

As part of the exit process he was given a good-bye kiss in the form of a severance agreement – ONE month’s salary upon signature in exchange for a TWO YEAR non-compete.  

WHOA!…

A Few Things to Consider:

Getting fired or laid off sucks and, in the heat of the moment, it’s easy to get caught up in the trap of signing a bad deal in exchange for a few bucks that cushion the blow. With regards to the non-compete, be very careful! 

If you’re a skilled and knowledgeable executive, the companies that may have significant interest in your services are your competitors. Before you sign anything be sure you let them know of your availability.

Simply walking across the street may be a good and quick solution to your unemployment issue.

The company that just terminated you feels your skills are no longer needed… or were no longer a value to the organization. What do they care where you go?  

During your exit negotiations, down-play your potential value to the competition to ease feelings that a non-compete needs to exist at all. 

Severance agreements are drafted by corporate lawyers to protect THEIR clients. It is a good idea to get a lawyer who’s going to protect YOUR interests. 

Yes, Non-Competes Are Enforceable!

As a professional Executive Recruiter, I often hear “Yes, I have a non-compete but it’s not enforceable, especially in my state because it’s a ‘right to work’ state.” WRONG!

Non-competes ARE enforceable. You signed it… it’s a deal. The company may not wish to pursue it, but that doesn’t mean they can’t.  

So, if you don’t like the terms in front of you, don’t agree to them.

Right to Work does NOT mean that non-competes – that executives signed willingly or stupidly – do not matter. 

A “Right to Work State,” simply, is one that allows people to work in a UNION shop without being forced to join the union.  I.e. if a worker wants to work for Ford but does not want to join the UAW, which represents the local plant, he may do so – in Right to Work States. In NON-Right to Work states, he / she will be required to join the union because it is what the majority of workers voted for. Right to Work refers primarily to non-executive levels and government employees where unions are prolific.

To that regard, I have found that non-competes muddy waters. There are some companies that will litigate them to the greatest extent possible. There are others who don’t care…  It all depends on the circumstances.

A Rule of Thumb…

Many companies will make an aggressive non-compete a part of a hiring process and include one as terms of employment. i.e. “We can’t wait for you to start with us next Tuesday…  here is your offer letter AND non-compete.”

And, they’re happy to get you all the way to the end-zone before they ever bring up the subject. If this happens, tread with caution! …  especially if you’re in sales and bringing your book of business or relationships to your new company. 

A good rule of thumb in your employment or exit negotiations is to work towards a dollar for days severance vs. non-compete. i.e. if a company wants you to sit on the bench for 12 months, they can pay you 12 months’ salary to do so. 

A Better Rule of Thumb…

The best advice is to contact a lawyer and pay $150 for advice as to what is or isn’t covered in the non-compete and the likelihood of it being enforced.

The laws of each state are different. But, the last thing you ever want to do is quit your job knowing you have a non-compete in place, and then getting you and your new employer sued because you violated it.

It rarely ends well.

Craig Picken is Managing Partner of Northstar Group, an executive search firm focused on senior leaders in aviation and aerospace.