Severance Agreements – What to Think About Before You Sign One, and Why You Might be Able to Get One Even if it Isn’t Offered
When I represent terminated employees, many of them have been presented with severance agreements that they ask me to review for them. Many more have not been offered severance, but may be able to receive it if they know how to ask. What should you do if you’ve been fired, laid off, or made redundant, before you sign a severance agreement? And what should you do if severance is not offered? Here are some things to consider.
- If severance is offered, make sure an attorney reviews the agreement. You may be giving up rights you have not considered, or may be agreeing to something that will cost you more than the amount of severance.
- Do you have a pension? How is it dealt with in the agreement? Many agreements contain releases that include releases under ERISA, which is the law that governs pensions. Make sure you are not accidentally giving up your pension rights. If you had an employer-matched 401 and are not vested, you are probably giving up the employer contribution to your 401.
- Did you have a non-compete agreement? If not, and the employer is adding one, it may limit you ability to get a new job. If the time restriction is longer than the number of weeks of severance, it is probably not worth signing the agreement unless you are going into an entirely new field.
- If you had a non-compete agreement, you should also have an attorney review it for you to make sure you understand your limitations before you sign a severance agreement. You will most likely be reaffirming those restrictions in a severance agreement, so may be giving up your defenses to the non-competition provisions. Some employers will try to add restrictions you did not have, make the restrictions longer or for a larger geographic area. Some know that they had an agreement that was not enforceable and use the severance agreement to put in place an enforceable provision.
- Is the release mutual? If the employer wants you to release them from any claims, they should also release you. Some claim to be offended by such a request, will say, “what did you do that you need to be released from?” The answer, of course, is, “What did YOU do that you need to be released from?” I have seen unscrupulous employers have employees sign releases, then turn around and sue the former employee for alleged wrongdoing on the job. Mutual releases assure that any claims are released by both sides. In banking, or other financial arenas, the employer will want an exception for undiscovered financial fraud/embezzlement, which should be acceptable. But if they know about it at the time of the agreement, they should be willing to release it or give up their right to a release so the employee can assert any defenses or counterclaims they have.
- Is confidentiality mutual? Employers want the severance agreement to be kept confidential. But if the employer does not have to keep it confidential, they may get cute and say things to references like, “I have to look at the agreement to see what I’m allowed to say.” Protect yourself and make sure that they can’t disclose the agreement to potential employers.
- Put in non-disparagement. You don’t want this employer to be able to say bad things to potential employers or to customers, co-workers or others in the community. If they want non-disparagement to be mutual, to keep you from bad-mouthing them, agree. It is worth the peace of mind to know that they will not be making negative comments that keep you from future employment.
- Do you have insurance? Many employers will pay some or all of your COBRA payments to tide you over while you are not working. You need to make sure you understand what will happen to your insurance benefits.
- Do you have stock options, stock appreciation rights, or other similar rights? Make sure the agreement is not making you give up valuable rights you may have. If you were about to vest, see if the employer will agree to vest your rights. If you were fired to keep you from vesting, you may have claims against the employer.
- Do you have any potential claims against the employer? Potential claims may give you leverage to negotiate a severance package if it is not offered, or to negotiate a better package. Ask yourself some questions:
- Am I of a different race, age, sex, national origin, marital status, color, or religion from those who were not terminated for the same reason or offense? If so, you may have a discrimination claim.
- Was I recently sexually harassed or the victim of other discriminatory harassment based upon race, age, religion, national origin, marital status, color, or disability? You can’t be fired in retaliation for reporting such harassment.
- Did I recently report, object to, or refuse to participate in discrimination, harassment, or illegal activity? If so, you may be a whistleblower.
- Did I recently make a worker’s compensation claim? If so, it’s illegal to terminate you for making such a claim, and you also need to make sure you are not giving up your worker’s compensation claim in the agreement.
- Did I recently take leave due to bereavement, sickness, disability, or serious medical condition of a family member? If so, you may have a Family and Medical Leave Act claim.
- Does the employer owe me overtime or wages? Make sure you are paid what you are owed. Plus, failure to pay wages is a great defense to a non-compete agreement.
- Did I recently testify against the employer or in any court case where I was subpoenaed? You can’t be terminated for your testimony under subpoena.
- h. Am I pregnant? You can’t be terminated for your pregnancy, or because you recently gave birth and the employer has stereotypical beliefs about women with children.
- Did the employer breach a contract with me?
- Am I over 40? If so, in a layoff or redundancy, the employer is supposed to provide you with a list of the ages of the others laid off or made redundant so you can determine whether or not age discrimination has occurred.
If you are in doubt about your rights or any potential claims you may have, contact an employment law attorney to discuss your options. There are attorneys who have experience in negotiating severance agreements to make sure your rights are protected.