In an employment separation agreement, how do you protect your company's goodwill?

When an employee departs on shaky terms, how can I safeguard my company's reputation?

Employees frequently leave their employers on sour terms, whether they are fired or willingly quit. In many situations, rather than risking a lawsuit or other potential dispute, the firm and the employee will agree that entering into a separation agreement is in their mutual best interests

Protecting Your Company's Goodwill

A separation agreement's fundamental concept is that the firm agrees to provide the employee something of value (consideration), usually in the form of a separation payment, in return for the employee fulfilling specific obligations to safeguard the company's interests. One of the main goals of any separation agreement should be to safeguard the company's reputation.

Goodwill refers to the intangible, difficult-to-quantify qualities that distinguish your organization. All of these things offer value to your business, but are difficult or impossible to reproduce by another firm. The brand, reputation, employee relations, client list, and supplier base of your firm are all examples.

When an employee leaves, this article outlines ways to safeguard these important assets. It's worth noting that goodwill is frequently calculated using the company's secret information and proprietary rights.

What Is a Non-Compete Clause?

An employee often learns important secret knowledge about a firm's business procedures, clients, know-how, and plans, information that may hurt the organization if the person left to work for a competitor. A non-competition clause (noncompete) is a typical term in a separation agreement that states that departing workers will not compete with the company for a specified period of time and within a particular geographic area. Working for a rival or launching a competitive firm are examples of this.

One effective way to structure the non compete is to:

• include a list with the names of specific company competitors (Named Competitors)
• prohibit the employee from working or consulting with the Named Competitors
• define the business of the company as broadly as possible
• further prohibit any activity that competes with the business (including, but not limited to, working with the Named Competitors), and
• prohibit any activity that competes with any future business of the company, whatever it may be.

Despite a company's natural desire to make the noncompete's length and geographic scope as onerous as possible for the employee, the law acknowledges that it is in the public interest for workers to be able to earn a living. As a result, each state has its own rules limiting the length of noncompetes and the geographic extent of noncompetes.

What Is a Non-Solicitation Provision?

A nonsolicitation clause is frequently included with a noncompete agreement, although it is occasionally disregarded (nonsolicit). Because individuals commonly confuse the two, or think that the noncompete sufficiently resolves the concerns addressed by the nonsolicit, the nonsolicit is frequently overlooked. The fact is that the noncompete and nonsolicit agreements function in tandem.

While the noncompete clause states that the employee will not work for a competitor, the nonsolicit clause states that the person will not recruit your company's customers, suppliers, employees, or other representatives. The nonsolicit is essential in defending your company against both sides of a competitive onslaught.

What to Include in a Non-Disparagement Provision

For a variety of reasons, employees may quit or be fired. The mere presence of a separation agreement suggests that the employee is dissatisfied and intends to leave on poor terms. Because the separation agreement is based on the contractual necessity that the employee be compensated for signing the agreement, it is in the company's best interests to guarantee that the employee cannot in any way harm the company's brand or reputation while collecting the separation payment.

A non-disparagement provision states that the employee will not make any negative remarks about the firm, whether verbally or in writing, and will not take any other acts that might harm the company's brand or other parts of its goodwill. The non-disparagement clause should also include a statement that the employee has not damaged or badmouthed the firm in any way prior to the separation agreement's effective date.

Ensuring Compliance With Restrictive Covenants

Because they limit the employee's future behavior, these three limitations (non-competition, non-solicitation, and non-disparagement) are known as restrictive covenants. If the firm has not yet given the whole consideration to the employee, it is simpler to control the employee's adherence to these restrictive covenants. If the firm delivers the separation money to the employee in installments, for example, the employee will be motivated to rigorously adhere to the restrictive covenants until the employee is paid in whole.

To protect itself from the inevitability of the employee receiving the whole separation compensation and having no motivation to comply with the agreement, the separation agreement must include extra possible consequences for violation. The firm's power to seek the full separation compensation (including any profits generated), issue a temporary or permanent injunction, sue the employee, and have the employee refund the company for any attorney's costs paid are all common repercussions. Furthermore, the separation agreement should include a severability clause, which states that if a court finds any of the restrictive covenants to be unlawful, the court will alter the provision as little as possible to bring it into compliance with the law.

​​​​​Yoel Molina, Esq. (AKA “Mo”)

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