By Emma Petite and Qiaojing Ella Zheng
When your employer presents you with a severance agreement, it is understandable to feel overwhelmed by the agreement itself and the “legalese” within; by your termination and the prospects of finding new employment; and by the circumstances that led to this agreement. At Sanford Heisler Sharp McKnight, we often hear from employees who are unhappy with the severance agreements and packages presented to them and are unsure of the options they have.
Below is an explanation of what a severance agreement is, what signing one means for your rights, and what your options are.
What Is a Severance Agreement?
A severance agreement is a legal contract given to an employee by their employer, typically at the time of the employee’s termination. Severance agreements often include language stipulating that, as the employee, you release all of your potential legal claims against your employer to the extent permitted by law. This means that if you have already signed your severance agreement, there is often not much an employment attorney can do for you to negotiate a better severance. If you think you have been discriminated against, faced retaliation, or were otherwise wrongfully terminated, signing a severance agreement can prevent you from pursuing such claims any further.
If you have been notified of a termination, you should be careful and evaluate whether or not you have any potential claims, especially if you feel the termination was unwarranted or came as a surprise. You should talk to an employment lawyer to evaluate your options. Most of the time, employers have no legal obligation to provide severance to employees who are being terminated (there are exceptions at both state and federal levels, especially in the event of a mass layoff or shutdown of an entire work site or plant).
However, if you do have viable legal claims, there could be strong leverage to get better severance terms. Attorneys at Sanford Heisler Sharp McKnight have had many successes in doing this for employees.
Severance: The Benefits for Employers
Severance agreements are often a company’s attempt to buy themselves peace of mind and protect themselves from future lawsuits by their former employees, especially when the termination is questionable.
Severance: The Benefits for Employees
Severance packages often contain pay and benefits that employees are otherwise not entitled to receive when navigating an exit from a company. Severance agreements can include a monetary payout, insurance coverage through COBRA, stocks and stock options as well as other forms of equity, and outplacement services. Except for certain circumstances, there are no legal requirements for the amount of money, stocks, or health care coverage a severance package must include, and these offers often relate to the length of your employment and your position at the company.
A Severance Agreement Checklist
Always take time (and ask for more time) to evaluate the agreement and consider your options. Do not sign on the spot. In some circumstances, employers are required to give you a set amount of time to make your decision.[1]
While reviewing the agreement, make sure to scan for the following red flags:
1. Benefits offered in the severance agreement should not include anything to which the employee is already entitled. If you are owed any unpaid wages or bonuses, receipt of such dues should not be conditional on signing the severance agreement.
2. A “gag” clause, also known as non-disparagement clause, may be included in your severance package. The purpose of a non-disparagement clause is to limit the potential for negative exposure from a terminated employee. Generally, a non-disparagement clause would prevent you from disclosing any information that could be negative or harmful to the employer’s reputation. The problem with these clauses is that the scope of the prohibition is often very broad and might subject you, the employee, to legal liabilities easily (issues with extensive prohibitions may also occur in confidentiality clauses).
3. Your employer cannot force you to forfeit your statutory right to file a claim/charge with the EEOC or any other government agencies. Sometimes, companies will include alternative language that forces the employee to forfeit their right to receive compensation for reporting to government agencies: These types of clauses are often illegal.
If there is anything you find objectionable, we recommend that you consult with an employment attorney first. If you are interested in speaking with an attorney, feel free to fill out our online intake form.
[1] The federal Older Workers Benefit Protection Act (OWBPA) offers additional protections for employees over the age of 40 who work at companies with 20 employees or more. See https://www.eeoc.gov/history/older-workers-benefit-protection-act-1990