Your employer has just told you it no longer needs your services. You leave your termination meeting shocked, confused, and demoralized. Perhaps you do not know how you will maintain your standard of living without your paycheck. Perhaps you feel your employer terminated you unfairly. The future feels uncertain. However, your employer did present you with a severance agreement. You glanced at the pages of legalese mostly noticing the dollar amount your employer offered you in exchange for your signature.

Receiving that amount right away might be tempting. But, before you sign, hit pause, seek to understand the agreement, and consider your options.

Reading Your Severance Agreement

Most severance agreements contain provisions in the following categories:

Money

Companies offer a certain amount of money as severance to employees they have terminated. Evaluate the amount of money you have been offered by considering the following factors:

First, does your employer have a severance agreement plan? Some employers calculate the amount of severance pay they offer departing employees based on set formulas, often taking length of time an employee has worked for the employer into account. Read your employer’s handbook and policies, or speak to other (past) employees to learn more. If you belong to a union, speak with a union representative and read your collective bargaining agreement. If you find your employer does have a set formula, make sure you get what you deserve under it.  Federal and state laws govern an employer’s nondiscriminatory handling of severance agreements.

Second, consider how long it will likely take you to find a new job. Compare this time period to the number of months of pay the employer’s proposed severance amount covers.

Third, do you normally receive an annual bonus? Consider the terms for your bonus – is it purely discretionary or are you entitled to some portion of it?

Your employer must offer you something of value, to which you are not already entitled, in exchange for your signature on the severance agreement. In New York, and some other states, you already deserve certain payments from your employer. For example, your employer must pay you accrued vacation time, and any tips, commissions, or wages you have earned.

Waivers

You may not have realized it, but by signing most severance agreements, you also release legal claims you may have against your employer. So, if you think your employer terminated you wrongfully, have an employment lawyer review the strength of your claims before you waive them. For example, if you believe you experienced illegal harassment, discrimination, or retaliation in the workplace, now is your time to decide whether or not to pursue those legal claims.

If you have strong claims but do not wish to pursue them, you might still want to bring the claims to your employer’s attention. Your employer should pay you more in severance in exchange for waiving your claims. Note that while you may waive your right to bring a lawsuit, you cannot waive your right to report discrimination to the Equal Employment Opportunity Commission. Check out this useful EEOC explanation of which rights you may legally waive here.

Rights you may not waive in a severance agreement

1. Rights to unpaid overtime or minimum wage pay under the Fair Labor Standards Act
2. Right to file a charge, testify, assist, or cooperate with the EEOC or other government agency
3. Rights or claims that arise after the date you sign the agreement. (You cannot waive future claims only past ones).
4. Rights to claims for unemployment compensation benefits, worker’s compensation benefits, health insurance benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA), or claims for vested benefits under a retirement plan governed by the Employee Retirement Income Security Act (ERISA).

If you are 40 years of age or older

Your severance agreement will likely ask you to waive any claims you may have under the Age Discrimination in Employment Act (ADEA). The Older Workers Benefit Protection Act (OWBPA) specifies additional requirements an agreement must meet before it adequately waives ADEA rights.

Under the OWBPA, waivers of age discrimination claims must be “knowing and voluntary,” meaning, a waiver must:

1. Be written in a manner that can be clearly understood.
2. Specifically refer to rights or claims arising under the ADEA.
3. Advise the employee in writing to consult with an attorney before accepting the agreement.
4. Provide the employee with at least 21 days to consider the offer.
5. Give an employee seven days to revoke his or her signature.
6. Not include rights and claims that may arise after the date on which the waiver is executed.
7. Be supported by consideration in addition to that which the employee is already entitled.

See here for more details.

Benefits

Losing access to your employer’s health insurance plan can be one of the most frightening parts of terminated employment. The federal law Consolidated Omnibus Budget Reconciliation Act (COBRA), and certain analogous state laws, mandate that an employer allow a past employee continued access to their healthcare plan for a set period of time. Despite this benefit, employees will likely have to pay more to continue on the plan than they did during employment. Former employees must pay their previous contributions plus their employer’s contribution to remain on the plan.  Still, a terminated employee may ask an employer to continue paying it’s healthcare contribution for a period of time. Some employers also extend terminated employees’ access to life insurance and disability benefits.

In addition, many terminated employees wish to continue receiving some regular income by applying for unemployment benefits. The likelihood of winning unemployment benefits increases if the past employer does not oppose the claim. Employees can request employers write their promises not to oppose unemployment benefits claims into severance agreements.

Finally, employees may ask to keep certain equipment.

Future Obligations

You also may find provisions in your severance agreement detailing your and your employer’s future obligations to each other. Both sides may want these provisions in the agreement to safeguard information, reputations, and future opportunities.

Noncompete and Non-Solicitation Agreements

Most employees with noncompete and non-solicitation agreements sign them at the start of their employment. However, a severance agreement negotiation presents critical opportunities to re-negotiate their terms. Many courts, such as those in New York, deem enforcement of noncompete agreements against terminated employees to be unconscionable. See Morris v. Schroder Capital Mgmt. Int’l, 445 F.3d 525, 529-30 (2d Cir. 2006). Even in states that do allow for noncompete enforcement, reasonable employers will pay the terminated employee severance through the duration of the time period covered by the agreement.

Non-solicitation provisions prohibit employees from soliciting their employer’s clients for their own or another business’s benefit.

If you have agreed to a noncompete or non-solicitation agreement, it would be wise to consult with an attorney before signing any severance package.

Confidentiality and Non-disparagement Provisions

These provisions exist to safeguard trade secrets and reputations.

With respect to trade secrets, your obligation to keep certain information confidential continues after you leave your position at the company. Make sure you understand which information you must keep confidential so you can fulfill your duties.

With respect to reputations, the severance agreement your employer presented to you might contain a non-disparagement clause limiting your ability to speak negatively about the company. You should either:

1. Remove this clause if you wish to speak negatively about your company in public forums.
2. Make the clause as reciprocal as possible. Ask the company to agree that certain employees will not disparage you.

References, Recommendations, and Outplacement Services

Having certain company employees agree to not disparage you could be helpful. But obligating your employer to give you positive references or recommendation letters in the severance agreement could be even more helpful.

Finally, consider alternatives that will help you find future employment. You could ask to stay on the payroll for the duration of your severance so that you can find a new job as an already employed person. Or you could ask your employer to include outplacement services as part of your severance package.

Severance Agreement Next Steps

With your new understanding of the money, waivers, benefits, and future obligations outlined in your agreement, you may want to negotiate a better agreement. You also may want more help understanding the meaning of particular provisions.

First things first: note the deadline for responding to the agreement and ask for more time if you need it.

Next, consider consulting with an employment attorney. An attorney can review your agreement, explain its provisions, suggest edits, and give you negotiation tips. Furthermore, engaging an employment attorney to negotiate directly with your employer can make a big difference in outcomes.

Thanks for reading.

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