When an employer offers a severance agreement, employees may be tempted to simply sign it and move on. But severance agreements always deserve a closer look, even if you may be tempted to quickly close the chapter with your employer and focus on the future.
In exchange for severance pay or benefits, employees are almost always asked to give up important legal rights and undertake additional legal obligations. Understanding what you’re agreeing to before signing the severance agreement can help you make an informed decision about your next steps.
What is a severance agreement?
A severance agreement is a contract between an employer and employee that identifies the terms of separation of the employee from the employment. Generally, severance agreements are not required to be offered by the employer upon employee departure.
When severance pay through a severance agreement is offered, the amount offered can vary widely depending on the circumstances surrounding the separation, the employer’s severance pay plans or policies, and the employee’s role and tenure.
In some cases, a severance agreement may include compensation or benefits beyond severance pay, such as:
- Retention of company-issued equipment, such as laptops or cell phones
- Extension of certain insurance benefits
- Assistance with searching for new employment, including career coaching or resume writing
However, for employees it’s important to note that in return for the benefits being offered, they are being asked to agree to certain conditions that affect their legal rights.
Do you have to accept a severance agreement?
No. Whether an employee accepts a severance agreement offered by an employer is voluntary. However, declining to sign a severance agreement usually results in the employee forgoing any severance pay and benefits that have been offered.
Severance agreements are intended to be legally binding contracts, so it’s important to understand the full picture of what you’re signing before making a decision – including both what you’re receiving and what rights you’re being asked to give up.
You may be waiving your right to certain legal claims and undertaking legal obligations
One of the most important parts of a severance agreement is the release of claims provision. By signing a severance agreement containing a release of claims provision, an employee waives the right to bring certain legal claims against the employer, including, but not limited to, claims related to:
- Discrimination
- Harassment or hostile work environment
- Retaliation
- Unpaid compensation
- Wrongful termination
- Breach of contract
If you believe you’re in a position to make any of the legal claims referenced above or others, you should seek legal counsel before signing an agreement with your employer.
Further, most severance agreements, if accepted, impose additional legal obligations upon the employee, including, but not limited to, confidentiality, non-disparagement of the employer, and future cooperation with the employer. Occasionally, severance agreements contain restrictive covenants, such as non-competition agreements and non-solicitation agreements, that restrict the ability of an employee to work in certain industries during a certain period of time or contact third parties for business-related purposes. It is important for employees considering severance agreements to fully understand the current and future impact of all of the terms of the severance agreement offered to them.
Are severance agreements negotiable?
Many employees assume a severance agreement is a take-it-or-leave-it offer, but depending on the circumstances, employers may be open to negotiating the terms.
Areas for negotiation might include:
- The amount of severance pay the employee will receive and timing of payments
- Funds to continue health insurance coverage
- Non-disparagement provisions
- Reference or recommendation language
- Clarification or relaxation of non-competition agreements
- Agreement not to contest application for unemployment benefits
Each situation is unique, but employees may have more leverage to negotiate their severance agreement depending on how long they’ve been with the company, the type of position they hold, if there is a larger layoff occurring, or if there are potential legal claims related to the employment or termination of employment.
When should you speak with an attorney?
Some severance agreements are more straightforward than others, but it is always a good idea to consult an attorney, especially if:
- You believe your termination may have been motivated by illegal discrimination or retaliation
- You’re being asked to sign quickly by the employer
- You have questions about what rights you may be waiving or obligations you may be agreeing to undertake
- You are subject to a noncompete or other restrictive covenant
- The severance package involves significant compensation or benefits
An attorney can help you understand all aspects of the agreement, identify any concerns, and determine whether negotiation may be appropriate.
What to do if you’ve been offered a severance agreement
A severance agreement may represent the final chapter of an employment relationship, but it can also affect your future.
Employees should carefully review an agreement before signing, ensuring they have a clear understanding of any rights they may be waiving and obligations they may be undertaking to their former employer, as well as any possible long-term implications that might impact their personal and professional goals for the future.
If you have questions about a severance agreement or other employment-related matters, the employment attorneys at Murray Plumb & Murray can help you understand your options and make informed decisions about your situation.
