You're probably aware of the Conan O'Brien and NBC saga. The Late Night with Conan O'Brien was replaced by former "Tonight Show" host Jay Leno, whose 10 p.m. show was canceled due to bad ratings. O'Brien rejected a plan by NBC to move the "Tonight Show" to 12:05 a.m. to make room for an 11:35 show hosted by Leno.
As a result, O'Brien left his position and NBC. While this particular struggle became highly publicized and even ugly, these events bring attention to an important issue in employment and contract law - severance agreements.
What Is a Severance Agreement?
A severance agreement, sometimes called a severance package, termination agreement or separation agreement is an agreement that spells out the terms of your employment termination. The agreement sets out each side's rights and is commonly used in high risk terminations, such as O'Brien's, and as a way to avoid future work-related lawsuits.
The Conan Severance Agreement
When NBC terminated O'Brien, there was much controversy, both because of his popularity and because of the terms of the agreement. The Wall Street Journal reported O'Brien received a severance package of about $32 million while his staff received about $12 million.
O'Brien is free to pursue other opportunities after September 1, 2010. But he won't be allowed to take his best-known characters and skits with him when he leaves NBC because they're considered intellectual property of NBC. O'Brien's manager told reporters that he wants to return to the air as soon as possible and is hoping to establish a show similar to the Tonight Show.
What Are the Important Parts of a Severance Agreement?
The key elements of a severance agreement include:
- A clause detailing the nature of the separation notice and the last day of work. Employees usually prefer the term resignation, which allows them to look for a new job without the stigma of a termination on their employment records
- Sometimes an employee will receive compensation when he or she leaves the job. This clause will explain how much money is going to be paid to the employee and how it's going to be paid. This may be paid all at once or over some time, as agreed by the parties. Each has its own tax consequences
- A clause that releasing all claims the employees may have against the employer. This means you won't be able to sue your company for real or perceived wrongs they've done you
- A provision detailing payments for any accrued but unused sick or vacation pay
- Provisions detailing the treatment of confidential and proprietary information. This provision must be specific so that both parties know what they can and can't do in the future
- Throughout his 17 years on the air, O'Brien developed many characters and material. While he delivers them, this material actually belongs to NBC. If O'Brien creates a new show on another network, he won't be allowed to bring some of his best-known bits and characters, such as Triumph the Insult Comic Dog, with him
- Terms describing when and how the departing employee can compete with his old employer. This provision, called anon-compete clause usually involves serious negotiation. In O'Brien's case, it's been reported he'll be able to launch a new show some time in September
- There may be a clause dealing with whether the employer will continue the employee's health care coverage and for how long. Sometimes benefits can continue for a few months or until the employee gets new coverage from a new employer.COBRA is another option if you don't get a job right away
- In high-profile terminations such as this, the agreement should address whether the terms of the agreement will remain confidential or, at a minimum, state what can be made public
Several provisions are unique to O'Brien's case. O'Brien's severance package is rumored to include a "nondisaparagement" clause that prevents both O'Brien and NBC from saying negative things about one another for a set period of time. That means if O'Brien does start another show, he won't be able to bash NBC, as he did during his last few weeks on the network.
Interestingly, one thing that's not in O'Brien's agreement is a mitigation clause. A mitigation clause says that when the employee finds another job, the former employer won't have to pay all or some of the severance pay. Since there's no mitigation clause, O'Brien gets the entire package regardless if he begins a new show or not.
While most likely you won't have to deal with these issues at such a large-scale level, the basic terms of a severance agreement are universal and it's good to be aware of them.
Questions for Your Attorney
- Should I give up my right to sue my employer in my severance agreement?
- I accepted a severance agreement from my company, but now I think the terms are pretty bad. Can I change it now?