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Employee Tip: Things to Consider When Your Employer Offers a Severance Agreement

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If an employer has offered you a severance agreement, you should consider the following things.

Note: this post does not give legal advice. For legal advice about your severance situation, please contact an attorney.  To reach me, click here:

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  • Consider deadlines, and act promptly.

The moment you are given a severance agreement, check it for a deadline. Chances are, your employer gave you a deadline in which you must agree to, or decline, the severance. For workers 40 years old or older, federal law requires employers give a 21-day period to review the severance agreement.

If the employer has not given you a reasonable amount of time, or rushes your decision, that is a red flag. An employer who is interested in being fair will understand that you cannot review or make decisions about an important document on a moment’s notice.

If you are being rushed, ask for more time. Make such requests in writing. If you are over 40 and the employer is asking you for a decision in fewer than 21 days, tell the employer (politely, and in writing) that the law requires you be provided at least 21 days.

Review the agreement promptly, and if you decide you want an attorney to review the agreement, make all such arrangements sooner rather than later. You should not wait until the last day before the deadline to review the severance agreement, or wait until that point to decide whether you want to speak to an attorney about the agreement. You should take these steps early on.

  • Know that in signing a severance agreement you will be giving up important things: first and foremost, you’ll be giving up your right to pursue any legal claims against the employer.

The main benefit to you in signing a severance agreement is to receive monies and/or benefits provided in the agreement.

The main benefit to the employer is that, in exchange for your receipt of these monies and benefits, you will be signing away your right to bring legal claims against the employer.

Know there may be potential value– sometimes substantial value- in the potential legal claims you are giving up. You may also be giving up other things. For example, a severance agreement may have non-compete terms that prohibit you from working for the employer’s competitors. Thus, when you sign a severance agreement, you may (if there are non-compete terms) be limiting your career options, and you will almost certainly be waiving your right to bring any legal claims against the employer.

When I review a given severance agreement and evaluate that given employee’s potential legal claims, it is often the case that the severance monies’ value is worth more (when all potential monies and risks are considered) than the likely value of any potential legal claims.

However, there are occasions when the value of the potential legal claims far outweighs the value of the monies offered in the severance agreement. In those instances, the employee has more leverage in trying to increase the severance, or has the option to forego the severance and pursue a legal action instead.

Because of this, it is probably worth your while to have an employment attorney assess potential claims, and their potential value.

  • Know the employer likely did not have to provide you with a severance agreement or severance pay.

Unless you and the employer have an employment contract or policy requiring a severance be paid, the employer has no legal obligation to pay you any severance monies when terminating your employment. Accordingly, no matter how unfair your termination may be, do not assume you are entitled to anything, or make demands based on the assumption you are “owed” a severance.

The employer’s severance offer may seem unfair in light of your years of service, the quality of your work, and other factors. But no matter how unfair your termination, unless you have a preexisting contract or policy requiring you be paid severance pay, the law does not require that you get any severance pay.

Employers know that severance pay is not required, so if you assume you are “entitled” to more pay, the employer may react negatively to any such assumption of entitlement.

  • Know the severance terms are negotiable, and can (and in some cases, must) be changed.

Many employees will accept a severance agreement as is, or will assume there is no room for negotiation. Do not assume this. Many employers will negotiate and change terms, especially terms that don’t cost the employer anything to change.

There are instances- for example, when a severance has very restrictive non-compete terms- where some employees must ask for changes, and may need to refuse the severance altogether if the employer will not change or remove the terms. An employer who negotiates in good faith should be open to hearing your reasonable requests for revisions, and to revising its severance language.

  • Consider whether you have leverage (namely, potential legal claims) to negotiate and increase the severance monies offered.

As mentioned, you shouldn’t ask the employer for more money just because you feel entitled to it, or because you feel more money would be more “fair.” However, you should consider asking for more money if you have legitimate leverage to do so.

An employee’s main form of leverage is the potential legal claims that he or she has. (I have a post here about what types of factors suggest an employee has a “good case”). If you potentially have a good case or claims against the employer, this may provide leverage to negotiate a higher severance payment. An employment lawyer can best evaluate whether you have any potential legal claims, and whether those claims have a potentially significant value.

Note that for employees who do not have attorneys, most employers do not fear those employees’ threats of potential legal claims no matter how potentially meritorious.  Most employees who try making legal threats, or try other forms of leverage on their own, usually botch any severance improvement opportunities they otherwise could have had. Sometimes, employers are upset by leveraging attempts and that moves things backward.  Consider speaking with an employee rights attorney, as such attorneys (if competent and experienced) have been through many severance negotiations and have legal knowledge and trial-and-error based knowledge about what types of leverage actually work.

Tread carefully, and thoroughly assess your leverage and strengths before you ask for a higher severance payment.

  • Review the severance agreement for penalties or liquidated damages.

Severance agreements usually have penalties that will be applied to you if you breach the agreement. For example, it is common for a severance to (1) require the employee keep the severance (namely, its value or dollar amount) confidential; and (2) require that, if the employee breaches the confidentiality requirement, he or she will have to pay back the full severance value as a penalty.

Another common penalty provision is where a severance requires an employee to pay the employer’s attorneys fees if a court finds the employee breached the contract.

As you review your severance, pay close attention to any penalty provisions. While you may feel (understandably) there will likely be no future disputes over the severance that would trigger the penalties, it is still important you know the penalties up front. If the penalties are particularly strict or one-sided against you, that may tell you that: (1) you’d stand to lose a lot, and the employer to gain a lot, if the employer pursued and won a breach action against you; and (2) thus, the strict penalty provision may motivate the employer to litigate under lesser circumstances than it would usually take.

  • Review confidentiality terms closely, make sure you understand them, and start following them immediately.

Employers are understandably very concerned that the parties keep confidential the severance terms, and namely the monies paid. Pay special attention to the wording of any confidentiality provision in your severance agreement. Make sure you read all confidentiality language in full, understand it, and do not violate it. A breach of confidentiality- perhaps more than any other type of breach- is likeliest to trigger strict penalty provisions and to motivate litigation.

You should start keeping things confidential well before you sign the severance agreement and before the confidentiality provision officially applies. Once you start talking severance numbers with an employer, you should not be discussing those numbers with others (except with an attorney or others who the severance specifically lists as exceptions to the confidentiality requirement).

You may have former coworkers ask you “Did you settle? How much did you get?” The best answer is no answer. Sometimes, the severance itself will supply you with an answer phrase to respond with, such as “The matter has been resolved.” In any event, do not discuss the severance or its dollar amounts.

  • Make sure the severance includes language that does not hurt your prospects of receiving unemployment income.

While unemployment matters depend on the State involved and circumstances, workers who are fired or laid off from a job are more often eligible for unemployment insurance income as compared to those who voluntarily resign. Related to this, sometimes the language or terms of a severance agreement can hurt one’s chances to receive unemployment.

For example, say your severance agreement states that you “voluntarily resigned” when in fact you were terminated. For some purposes (e.g. job-hunting) it may sound appealing to retroactively “agree” with the employer that you “resigned.” However, for unemployment purposes this could potentially present risk. Thus if you didn’t resign, it may help to have the employer agree, in the severance agreement, to state the truth that your termination was not voluntary or that it was not a resignation for purposes of unemployment benefits criteria.

There are other unemployment pitfalls that can arise in a severance agreement, based on its particular terms and language. An attorney could help you spot and address such issues.

  • Check how the severance addresses any outstanding monies that may be owed (e.g. bonuses and commissions you’d already earned, vacation pay accrued, etc.), and any benefits that may be owed (e.g. check when the severance says health insurance and pension payments will be discontinued).

When you are notified your job will end, you should find out the status of any remaining monies you may be owed. For example, say you have three weeks of unused vacation pay accrued at the point you are terminated. You should review the severance agreement’s language and see whether it says you will be paid out for this unused vacation time.

If the severance agreement says nothing about whether vacation pay (or earned bonuses, commissions, etc.) will be paid out, you should assume they will not be paid out.

It is also important you review the severance for benefits issues, such as whether health insurance will be provided, at what cost to you, and for how long. You should also check whether 401k and/or pension benefits will be affected by your termination and severance agreement.

If the severance agreement is not clear what will happen with monies and benefits like those above, then before signing the agreement you or your attorney should consider speaking to an appropriate representative of the employer (probably someone in HR designated as a benefits contact) and get official status on all those issues, and what will happen with them in light of the severance.

  • Check the severance language for one-sided or unfair terms.

Too often, a severance agreement drafted by the employer contains several one-sided terms that benefit the employer. For example, it is common for a severance agreement to: (1) state that, if a court finds the employee breached the agreement, then the employee (the loser in litigation) has to pay the employer’s attorney fees; (2) but if the employer is found to have breached the agreement, there is no similar requirement that the employer pay the winning- employee’s legal fees.

Similarly, severance agreements often require that (1) employees have to keep the severance terms confidential and not disparage the employer, (2) but do not require the employer to follow any confidentiality or non-disparagement requirements.

Ideally, an employee or their attorneys could fix these one-sided terms if possible. That is, make the terms mutual, or have them removed altogether.

If you are unable to get such one-sided terms changed, then you must decide whether you can live with them. Often, these one-sided provisions, while not ideal, are unlikely to ever come into play as a practical matter and are not important enough to be deal-breakers, so to speak. However, such one-sided terms may be cause for alarm that the employer does not intend to deal fairly with you- particularly if the employer is exhibiting other adverse conduct (e.g. making an unreasonably low severance offer as compared to value of potential legal claims, refusing to allow you time for review, etc.).

If an employer is showing a pattern of questionable conduct, you should be less inclined to accept the severance agreement at face value, and more inclined to review the severance agreement thoroughly, perhaps with an attorney.

  • Consider having an attorney review the severance agreement.

An employment attorney could provide value by reviewing the severance terms, and also by evaluating your potential legal claims and leverage. This can often be done for an affordable charge. I personally offer a free evaluation of an employee’s potential legal claims and severance leverage.  When I assist workers in negotiations, I often do so on a contingency basis where I am not paid fees unless my client’s financial situation is improved upon. Whether you select me or another attorney, that attorney should be able to describe for you the potential value you can gain from legal services before you are charged anything.

Note: this post does not give legal advice. For legal advice about your severance situation, please contact an attorney.  To reach me, click here:

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