When crafting severance agreements, review laws carefully

Q       When crafting a severance agreement, should you follow the guidelines of the state the employee resides/works in or the state where the company is incorporated?

The answer depends on a number of factors. Often, companies are incorporated in a state where they have no presence or operations. Although courts will sometimes allow parties to select a law to govern agreements, including severance agreements, employees may be able to challenge the agreement if it doesn’t comply with the state where they live or work.

In fact, some states, such as California and Colorado, have certain laws that apply to workers within their state regardless of what the agreement says. If the agreement is drafted to comply with the laws of the state of incorporation but not the state where the employee worked, the release might not be effective or enforceable.

Indeed, in the event of a dispute, it can be difficult to justify why the law in Delaware, for example, should apply to a worker in Colorado if the company has no operations in Delaware and the employee didn’t live or work there.