Leaving Your Employer |
June 09, 2015

3 Tips Regarding Severance Agreements

1. Know what a severance agreement is … and is not.

Severance agreements are legal documents—often several pages in length—that are prepared by the employer’s attorney and presented to employees at the end of the employment relationship. Such agreements typically offer the employee money or other consideration, and in exchange the employee agrees to certain terms, including releasing the employer from liability for all claims. Many times employers voluntarily offer severance, but not for purely altruistic reasons. Employers do so to reduce the risk of future lawsuits by their former employees. The amount of severance offered may depend on the employer’s internal policy or practice, its financial circumstances, or the employees’ years of service. If the employer’s severance offer is worth less than employee’s potential legal claims and damages, then it the employee should consult with an attorney before signing. Even if the employee does not believe she will be giving up valuable legal claims, or does not wish to pursue any claims against her employer, she still should consider talking with a lawyer to make an informed decision before signing.

2. There is no “standard” severance agreement. Most have standard terms and some have terms that are unusual.

There is no such thing as a “standard” severance agreement. However, severance agreements typically contain standard terms. For example, it is standard for a severance agreement to include language providing that, in exchange for a payment of money or other consideration, the employee agrees to give up her rights to pursue legal claims against the employer. The release language usually starts as very broad to cover every type of claim, and then becomes more specific as to each of the different types of claims that the employee waives. Almost always the release includes a statement that the employee relinquishes claims she may not even be aware of. Severance agreements typically state that the employee is required to return all information belonging to her employer, and not share any confidential information belonging to her employer with third parties. Some agreements indicate that the terms and conditions of the severance agreement itself, as well as the amount of severance, are completely confidential, which may mean that the employee cannot share information about the severance agreement with anyone such as friends or former coworkers. Often the agreement will address what consequences may be imposed on the employee if she breaches the severance agreement. Then there are some agreements that include terms which are onerous or overreaching. Because severance agreements are legal documents that will affect the employee’s rights and responsibilities to her former employer, employees are encouraged to talk with a lawyer before signing.

3. Know your leverage.

A severance agreement is an “offer.” It can be accepted or rejected. Sometimes an employee may want to try to negotiate better terms, either on her own or with the assistance of a lawyer. A represented employee being asked to relinquish potentially valuable legal claims will likely have stronger leverage in a severance negotiation, as compared to an unrepresented employee that is believed by the employer to have legal claims that are meritless or of little value. The latter employee may still request more favorable severance terms, but the employer may not be willing to modify its agreement for various reasons. Also, the employee should keep in mind that the employer can withdraw its severance offer at any time before it is accepted by the employee, and that most severance agreements specify a date by which the employee must accept the offer before it is withdrawn.