North Carolina is an “at will employment” state. This means employers can hire and fire employees for no reason or any reason the employer chooses, so long as that reason does not violate specific federal laws enforced by the Equal Employment Opportunity Commission, does not violate the North Carolina Retaliatory Discrimination Act or does not violate “public policy” as defined by the appellate courts of North Carolina.
Federal laws protect eligible employees who fall into certain classes and prohibit discrimination based on race, gender, sexual orientation, age and religious affiliation. The North Carolina Retaliatory Discrimination Act prohibits termination or discrimination against an employee for, among other things, filing a Workers Compensation claim, a Wage and Hour Act claim, an Occupational Safety and Health Administration claim, or for serving in the National Guard. North Carolina public policy generally prohibits firing an employee for exercising a legal right or obligation such as serving on a jury or refusing to engage in employment related conduct that would violate the law.
Are NC Employers Required to Provide Severance Benefits?
In North Carolina, employers do not have a duty to pay employees any severance benefit upon termination. If an employer pays a benefit, it is usually in exchange for the employee releasing the employer from any liability the employer may have incurred during the employment period or due to the termination. This generally is accomplished through a severance agreement.
What Is a Severance Agreement?
A severance agreement is the employer’s promise to provide valuable benefits—such as additional pay (severance pay), continued health insurance or other benefits—in exchange for the employee’s promise not to pursue any claim he/she may have against the employer for wrongful termination or workplace discrimination (even if legal or factual grounds for such a claim may not exist). Severance agreements benefit employers who may be exposed to litigation brought by disgruntled employees after termination. These agreements also benefit employees by providing money or extended benefits that may assist the employee in his/her search for the next job.
Requirements for an enforceable severance agreement include:
- The waiver of a right to sue must be written in plain, easily understandable language.
- The employee must be informed in writing that he/she has a right to consult an attorney before signing.
- The employee’s rights under the Age Discrimination in Employment Act (ADEA) must be clearly stated.
A severance agreement may also contain restrictive covenants, such as:
- A non-competition provision
- A confidentiality or non-disclosure provision
- A non-solicitation provision
- A non-disparagement provision
Non-Competition Provisions
A non-competition provision can prohibit an employee from competing with the employer within a specified geographic area for a specified period of time. The geographic area should reasonably relate to the territory in which the employer operates its business. The time restriction should be limited to the minimum time reasonably necessary to protect the employer’s legitimate business interests.
Confidentiality or Non-Disclosure Provisions
A confidentiality or non-disclosure provision can prohibit a departing employee from using the employer’s legitimate confidential or trade secret information for the employee’s own benefit after his/her departure or from disclosing such information to third parties (such as a new employer). The time restriction should be the minimum reasonably necessary to protect legitimate confidential information.
Non-Solicitation Provisions
A non-solicitation provision can prohibit an employee from soliciting existing customers or employees of his/her former employer. The time restriction should be reasonable.
Non-Disparagement Provisions
Finally, a non-disparagement provision can prohibit an employee from saying anything negative or disparaging about his former employer.
All of these provisions will be strictly (narrowly) construed by a North Carolina court with a heavy burden on the employer to show that such provision is reasonable in scope and that it protects a legitimate business interest of the employer.
Should You Sign a Severance Agreement?
Because severance agreements—particularly those with non-competition, confidentiality, non-solicitation or non-disparagement provisions—affect substantial rights of the departing employee, we highly recommend that an employee faced with such an agreement seek advice from legal counsel before signing. The qualified and experienced attorneys at Morrow Porter Vermitsky and Taylor, PLLC can provide the sound and seasoned advice employees need to make informed decisions. Likewise, we are well-equipped to advise employers on crafting severance agreements and restrictive covenants that will stand up under a court’s scrutiny.
For more information about severance agreements or to schedule an initial consultation, contact the Morrow Porter Vermitsky and Taylor team at 336.281.9379.