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Perils of Severance Agreements

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Terminated employees often strive hard to obtain severance agreements.  But a pair of rulings last year by the 8th Circuit Court of Appeals, the Federal tribunal that oversees litigation in Minnesota and surrounding states, underscore the perils of employees violating these arrangements. 

In one case, Hallmark Cards, Inc. v. Murley, 703 F.3d 456 (8th Cir. 2013), an employee was required to pay back a $735,000 severance payment because she violated the confidentiality clause protecting proprietary data.  The employee, as part of the severance agreement, agreed to maintain the confidentiality of proprietary data, but breached that obligation by furnishing certain information about a company to a competitor. 

The company sued, claiming violation of the separation agreement and sought repayment of the amount paid to her, as well as additional damages.   A jury found in favor of the company and ordered the ex-employee to pay back the full severance of $735,000 plus an additional $125,000 in post-employment consulting fees, for a total of $860,000. This prompted the employee to appeal to the Eighth Circuit, who overturned the portion of the verdict regarding the consulting fees but it upheld the verdict that the employee must return the full severance payment to the employer for violating the confidentiality obligation under the severance agreement. 

In another severance case, St. Louis Produce Market v. Hughes, 735 F.3d 829 (8th Cir. 2013), an employee entered into a severance agreement with his employer, which included a clause requiring the employee to return certain property to the employer.  The employee failed to return a lap top belonging to the employer, which prompted the employer to refuse to make severance payment. 

The employee’s suit was unsuccessful.  A trial court ruled that the employee violated a “condition precedent” by failing to return the property to the employer, which negated the employer’s obligation to pay severance under the agreement. 

These cases emphasize the importance of employees abiding by post-termination obligations under severance agreement. The failure to do so can lead to dire consequences, as reflected in this pair of rulings.