Severance Agreement Overview

Severance Agreement
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Two primary provisions form the basis of your severance agreement: your severance pay and the general release you agree to. Whatever severance agreement you received or would like to negotiate for likely contains several other meaty provisions, but these “Big Two” will greatly influence whether you’ll sign the agreement, reject it, or negotiate for better terms.

Think of your severance agreement as an exchange. Your former employer wants to give you something (severance pay, benefits, etc.) but also wants something in return (particularly a release from future legal claims). The challenge you face will be figuring out whether this offered exchange is worth it to you.

What Is Your Employer Offering?

Severance Pay

For a former employee, severance pay is probably the most important part of any severance agreement. This provision, which may be titled something like “Payment/Benefits/Consideration,” should explain how much money your former employer will pay you to release any possible claims you have against it. Make sure that you know exactly what that dollar amount is. Additionally, look for the dates on which the employer will make payments, and check to see what, if any, funds will be withheld from that amount. Additionally, please check to see what your employer demands that you do before you can receive your first payment. Some employers require the employee to return all company property before they make any payments. Most will ask that you wait until after a seven-day period, during which you have the right to revoke the contract, before they pay your first installment.

You also want to be sure that this provision addresses any compensation that your former employer owes you for outstanding wages, accrued time off, reimbursements, or the like. The agreement will probably specify that once you sign, you will not be able to sue for any other forms of compensation. So, protect yourself by directly addressing any funds you’re entitled to in the agreement before you sign it. If your employer disputes any of the compensation you believe you’re entitled to, you may need an attorney to advocate on your behalf.

Not all severance agreements include specifics about the form your payments will take or how the payments will be delivered. But you can minimize uncertainty by including that information in the severance payment provision. Specify whether your former employer will send the check in the mail or deposit it directly into your bank account. Include the address the employer should use to mail checks and other relevant correspondence. Make sure that your former employer always has your up-to-date mailing address and contact information so that you don’t face unnecessary delays.

Health Care Costs and Other Benefits

Some employers will cover the costs of benefits such as health care for a specified period of time. Look for this provision, which may be included under severance pay or may be found in its own section. If health-care coverage or other benefits are something that you would like to receive in exchange for releasing your claims against the employer, don’t hesitate to negotiate for it. Again, it may be easiest and most effective for you to find an employment law attorney to assist you in negotiations.

What Are You Giving Up?

General Release

The general release provision is where the employer asks you to waive all legal claims you believe you have against it; in some cases, this includes claims that you don’t even know you could have raised. The language and extent of general release provisions vary greatly. Many agreements specify the scope of this clause’s coverage to include only those claims arising out of your employment relationship and termination. A general release does not usually cover claims that may arise after you sign the agreement.

The general release provision applies not only to you but also to your heirs, representatives, successors, and assigns. This means that if the general release prevented you from bringing a claim, the same prohibition applies to those third parties. This extinguishes the possibility of someone else bringing a claim that you gave up under the agreement.

While general release agreements tend to broadly prohibit bringing claims for events that preceded the execution of the agreement, they often specifically list certain statutes that you cannot use to bring a claim, like the Americans with Disabilities Act, the Fair Labor Standards Act, and other similar laws. But just because the employer singles out certain statutes by name doesn’t give you the right to bring a claim under a law that is not mentioned by name. The language of a general release will most likely foreclose every avenue to a lawsuit.

However, there are exceptions to the release of claims. For instance, if you meet the age requirement, you may still be able to file a claim under the Older Workers Benefit Protection Act, which will allow you to challenge your employer if it didn’t give you sufficient time to review, sign, or revoke the proposed severance agreement. Likewise, you may still be able to file a claim for workers’ compensation and apply for unemployment insurance benefits. In fact, you could even ask to include a clause wherein the employer promises not to contest your unemployment insurance application. And some agreements may even specify that you can still file administrative claims with agencies like the EEOC—but they usually specify that if you do file that claim, you waive your right to receive monetary compensation and sometimes the right to reinstatement with the employer.

So, while the prohibitions contained in a general release are broad, there are often opportunities to seek some legal recourse against your former employer, depending on the type of claim you wish to bring, the remedy you seek, or the time when the underlying event occurred.

Need more information? Please check out our post entitled “How Long Do You Have Before You Must Decide to Sign or Decline a Severance Agreement Offer?”

Summing It Up

In evaluating a severance agreement, you’ll want to balance two factors:

  • what your former employer is offering to you—probably severance pay, health-care coverage, and/or a continuation of your benefits, versus
  • what you are agreeing to give up—any legal claims you may have against your former employer arising from your employment or your termination.

Still have questions about your severance agreement? Please contact our office for more help interpreting your agreement or deciding what to do.

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