The Anatomy of a Severance Agreement

Your job has just ended.
Sitting in front of you is an unsigned severance agreement.

At first glance, the severance agreement might as well be written in hieroglyphics, although you do see some dollar signs on the first page, and you could really use that money.

But you also you feel like your firing is unfair and wonder if you need to hire a wrongful termination attorney?

You know those dollars signs you saw on the first page come with a catch, but don’t know exactly what the catch is. You also don’t know if your severance package adequately compensates you for anything you might be giving up.

So what do you do? Perhaps hiring an employment law attorney is in order?

But before you get to that point, let’s go over severance agreements and give you a general idea of what you’re dealing with.

What is a Severance Agreement?

A severance agreement is a contract between an employer and departing employee where they each exchange something of value to each other. Generally, the employer gives cash and employment-related benefits to the employee while the employee gives the employer certain promises, such as not to sue the employer and maintain the confidentiality of information learned while on the job.

Severance agreements are not to be confused with severance packages. With severance packages, there is no contract and the employee receives the money or benefit with no strings attached.

Elements of a Severance Agreement

The exact provisions of a severance agreement will depend on a number of facts surrounding the employee’s departure. However, severance agreements have two primary sections, one that benefits the employee and one that benefits the employer.

The portion of the severance agreement that helps the employee can include any of the following:

Payment

Lump sum or multiple cash payments. Receiving two weeks, one month or three month’s salary, usually in one lump sum check, is the most common wait to be paid out from a severance agreement.

Benefits

Even though COBRA allows employees to continue receiving the health insurance benefits they had through their former employer, COBRA doesn’t require employers to pay for those benefits.  A severance agreement might pay that cost for a specific period of time.

Unemployment

A promise not to oppose the employee’s unemployment benefits. Before an employee can collect unemployment benefits, the former employer must first confirm with the unemployment agency that the employee is eligible to receive them. A severance agreement that contains this promise means it’s much more likely the employee will receive unemployment payments.

References

Most likely the employee will want to look for another job. Future employers are bound to wonder about the employee’s experiences at his or her most recent job. Having a former employer promise to say nice things to future employers can make finding a new job much easier.

Obligation

Exemption for another contractual obligation. As a condition of employment, many employees are required to sign employment agreements. This can include a noncompete or nonsolicitation agreement. Depending on the nature of the employee’s profession, not being bound by one of these agreements can be the most valuable benefit in a severance agreement.

For more information

If you’d like to learn more about severance agreements, please enter your e-mail address. We will send you our 6-part series that goes into greater detail about severance agreements and how to negotiate them along with access to sample Severance Agreements for Maryland, Virginia and Washington, D.C.

As explained earlier, these benefits aren’t free in a severance agreement.

Employers are expecting something return.

Most often, the biggest thing an employer wants is a release.

Within the context of severance agreements, a release is where the employee gives up certain legal rights they may have against the employer. These rights usually include legal claims against the employer, such as discrimination, wrongful discharge and breach of contract. If the basis for the employee’s departure is questionable, the release is probably the most valuable benefit for the employer.

A nondisparagement clause is another provision often found in a severance agreement. If an employee has embarrassing information about the former employer, especially concerning the reason for the employee’s departure, it’s understandable that the employer will try to buy the employee’s silence.

Employees reading a severance agreement shouldn’t be surprised if they see additional provisions in the severance agreement, including:

  • Noncompete clause
  • Nonsolicitation clause
  • Confidentiality clause

Why Severance Agreements Exist

In many situations, the purpose of a severance agreement is to immunize the employer from any legal claims in return for cash and/or other benefits. From a cynical point of view, an employee might think an employer only requests a severance agreement when the employer did something wrong. But this isn’t always true.

In some cases, the employer simply wants to move on without worrying about a future lawsuit from the employee. Even though the employer knows any lawsuit would be baseless, it can still be expensive to fight. To avoid this uncertainty, the employer may request the employee sign a severance agreement that contains a release.

Getting Legal Help

The assistance of an employment law attorney who understands the ins and outs of severance package laws, wrongful termination laws and employment discrimination can be extremely helpful when deciding how to proceed with a severance agreement.

For instance, a wrongful termination attorney can ensure the employee isn’t giving up any significant rights. If they do choose to give up certain rights, the attorney can make sure the employee receives fair compensation in return. The wrongful termination attorney can assess the merits of any potential lawsuit employee might have, including its potential settlement value.

An attorney can also help employees during negotiations and do so in a way that won’t harm the employee’s bargaining power.

But the biggest benefit of consulting with an attorney is identifying unknown red flags. Remember the old saying: You don’t know what you don’t know. It’s important to have a complete understanding of the situation before signing away your rights.

For more information

If you’d like to learn more about severance agreements, please enter your e-mail address. We will send you our 6-part series that goes into greater detail about severance agreements and how to negotiate them along with access to sample Severance Agreements for Maryland, Virginia and Washington, D.C.

 

Tom Spiggle

Tom Spiggle

Principal

Tom founded Spiggle Law to help individuals facing difficult workplace issues. Although Spiggle Law represents employees in many different matters, Tom has a soft spot for those who suffer from discrimination solely because they are pregnant or have family-care issues, like caring for a sick child or an elderly parent. As a former prosecutor with significant experience in high-level criminal cases, Tom is also uniquely qualified to represent individuals subject to workplace investigations and criminal prosecutions.

Phillis nashville

Phillis h. Rambsy

Partner

Devoting her practice to employment law gives Phillis a chance to combine her legal, academic, and activist interests.  Clients say that Phillis is responsive to their needs and speaks in a language that they understand.  Phillis describes herself as being a very assertive, even an aggressive attorney at times.  However, as a native of Tennessee, she insists that she always retains her Southern charm.

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