In Connecticut, severance agreements are often used when an employer terminates an at-will employee. These agreements aim to provide compensation in exchange for the employee waiving certain rights, typically including the right to bring claims against the employer. For at-will employees in Connecticut, severance agreements can include various restrictive covenants, liquidated damages clauses, and considerations that may significantly impact future opportunities.

Restrictive covenants in severance agreements limit what a former employee can do. Common types of covenants are non-compete, non-solicitation and nondisclosure agreements (NDAs). Connecticut courts generally enforce non-compete clauses if they are reasonable in scope, duration and geographic reach and do not impose undue hardship on the employee or harm the public interest. Non-solicitation clauses, which restrict the employee from reaching out to the employer’s clients or other employees, are also enforceable if they meet these criteria. NDAs must be specific as to the types of information they apply to, such as trade secrets or other proprietary information.

For a severance agreement to be legally binding, the employee must receive adequate “consideration” — something of value — in return for signing it. In Connecticut, at-will employees are not entitled to severance pay by default, so any severance payment, continued health benefits, or other financial benefits provided to the employee are usually considered adequate consideration. Importantly, if the employer is asking the employee to abide by restrictive covenants, the compensation offered should reflect the scope and limitations of those covenants. The more restrictive the terms, the greater the consideration typically required.

A severance agreement may include a liquidated damages clause, which specifies a predetermined amount the employee must pay if they breach a restrictive covenant. In Connecticut, these clauses are enforceable but must not be punitive. The amount specified should reflect a reasonable estimate of the employer’s anticipated losses in the event of a breach. If the amount is excessive, it could be seen as a penalty rather than fair compensation for damages, rendering the clause unenforceable. Employers should carefully consider these amounts to ensure they’re reasonable, while employees should be aware of the potential financial risks tied to these clauses.

Given the complexity and potential impact of restrictive covenants and liquidated damages clauses in severance agreements, you should consult with a knowledgeable Connecticut employment lawyer who can review the agreement, explain its implications and negotiate more favorable terms if necessary. This will ensure that your rights and future career opportunities are adequately protected and prevent costly mistakes that could arise from signing an agreement without a full understanding of its terms.

Gesmonde, Pietrosimone & Sgrignari, L.L.C. in East Haven and Hamden represents employees in discrimination claims, wrongful termination actions and other Connecticut employment law matters. To set up a meeting with one our attorneys, please call 203-745-0942 or contact us online.